ACIT 19(3), MUMBAI V. ASSOCIATED BUILDERS & LAND DEVELOPERS, MUMBAI

ITA 5439/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8640 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 26-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: B V JHAVERI
• Keywords: Capital asset; Business income; Business expenditure; Corroborative evidences; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 5439/MUM/2009 (ASSESSMENT YEAR: 2006-07) ASSISTANT COMMISSIONER OF INCOME-TAX -19(3), MUMBAI VS ASSOCIATED BUILDERS & LAND DEVELOPERS, SHOP NO.4, HOTEL METRO PALACE, HILL ROAD, BANDRA (WEST), MUMBAI -400 050 PAN : AACFA3551G APPELLANT RESPONDENT APPELLANT BY : SHRI AMAR DEEP RESPONDENT BY : SHRI B.V. JHAVERI DATE OF HEARING : 26.09.2012 DATE OF PRONOUNCEMENT : 10.10.2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL ARISES FROM THE ORDER OF CIT (A) XIS, MU MBAI DATED 25.07.2009, WHEREIN, THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: (1) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) S IN ALLOWING THE EXPENSES OF RS. 19,89,118/ - OF F.Y. 2005-06 AS A BUSINESS EXPENDITURE AND ALLOWING EXPENDITURE OF RS. 13,48,260/- ADDED TO THE WORK IN PROGRESS FOR THE PERIOD 2002-2 0O3 TO 2O05-06 IGNORING THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE DEVELOPER M/S RACHANA & ASSOCIATES. (2) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE RECEIPT AS COMPENSATION OF RS. 78,00,351/- IS CONTINGENT IN NA TURE AND THE SAME CANNOT BE REDUCED FROM THE VALUE OF LAND AND CANNOT BE CONSIDERED TO INCREASE THE INCOME, IGNORING THE FACT THAT THE AO HAS CLEARLY BROUGHT OUT IN THE ASSESSMENT ORDER THAT THE ASSESSEE HAS C LAIMED THE ENTIRE EXPENDITURE INCURRED TOWARDS LAND COST AND HENCE, T HE COMPENSATION RECEIVED BY IT SHOULD BE ALSO BE BROUGHT TO TAX AND THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIVIL APPEAL NO. 4401 OF 2009 DATED 16.07.2009 CIT FARIDABAD V GHANSHYAM, HUF DATED 16. 07.2009. ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 2 (3) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD CIT(A) ERRED IN DELETING THE ADDITIO N MADE BY THE AO TO THE WORK IN PROGRESS OF RS 6,26,720/- IGNORING THE FACT THAT THE ASSESSEE HAS PURCHASED WHOLE PLOT OF LAND AND DEVEL OPED ONLY SOME PART OF THE PLOT. (4) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING RS. 8,93,000/- AS BUSINES S EXPENDITURE IGNORING THE FACT THAT THE ASSESSEE HAS SHOWN ONLY EXPENDITURE NOT ACCOUNTED THE RECEIPT IN HIS BOOKS OF ACCOUNT. (5) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE ET SIDE AND THAT OF THE AO BE RESTORED. 2. THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS CARRYING ON THE BUSINESS OF BUILDERS AND DEVELOPERS OF PROPE RTY. THE ASSESSEE ENTERED INTO A DEVELOPMENT AGREEMENT WITH ONE MRS. SHEDULLA M. KHANDALKAR FOR THE PURCHASE OF FIVE PLOTS, BEARING NOS. 359, 361, 362, 362 & 365, TOTALLY ADMEASURING 21,277 SQ.MT., SITUATED AT PANVEL, DIST T. RAIGAD ON AS IS WHERE IS BASIS ON 25.04.1991, AS THERE WERE ENCUMBRANCES ON THE P LOTS OF LAND, WHICH INCLUDED, PLOTS, CUTTING ACROSS BY THE MAIN R AILWAY LINE OF CENTRAL RAILWAYS, ALONG WITH SOME SITTING TENANTS. 3. AS THERE WERE SO MANY ENCUMBRANCES, THE DEVELOPM ENT, AS PROPOSED FOR COMMERCIAL AND RESIDENTIAL PURPOSES COULD NOT B E STARTED TILL 2000. IN FINANCIAL YEAR 2002-03, THE ASSESSEE WAS SUCCESSFUL TO ROPE IN ONE RACHANA DEVELOPERS WHO AGREED TO TAKE UP DEVELOPMENT PROJEC T ON PLOT ON FIVE WINGS A, B, C, D & E, ON CERTAIN TERMS AND CONDITIONS. TH E DEVELOPMENT ON WINGS A AND B (PART) STILL COULD NOT BE STARTED, AS ONE T ENANT, MR. L.B. KATHARE DID NOT VACATE THE PLOT. SINCE THE PROJECT DEVELOPMENT, WAS STILL NOT TAKING ANY HEADWAY, IT BECAME NECESSARY TO RELOCATE THE TENANT MR. L.B. KATHARE, FOR WHOM A RCC STRUCTURE WAS GOT BUILT BY THE ASSESSEE. AS THE SAID TENANT STILL WAS NOT SATISFIED AND WAS CREATING UNWARRANTED PROB LEMS, THE DEVELOPMENT PROJECT HAD TO BE STOPPED. IN ORDER TO PACIFY THE T ENANT, THE ASSESSEE SPENT RS. 13,48,260 FOR THE CONSTRUCTION OF THE RCC STRUC TURE. ACCORDING TO THE ASSESSEE, THOUGH THIS EXPENDITURE WAS NEVER A PART OF EITHER AGREEMENTS, AND SINCE THE ASSESSEE HAD MORAL RESPONSIBILITY, AN D BECAUSE OF AN UNEXPECTED BUSINESS NEED, WHEREIN, THE ASSESSEE HAD TO INCUR THE EXPENDITURE. THIS EXPENDITURE, THE ASSESSEE CLAIMED DURING THE YEAR. SINCE ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 3 THIS EXPENDITURE WAS NOT EMANATING FROM THE AGREEME NT, THE EXPENDITURE WAS DISALLOWED BY THE AO. IN THE INTERVENING PERIOD TOWN PLANNING AUTHORITY AT PANVEL (TP), PROPOSED TO LAY RAILWAY L INE, BECAUSE OF WHICH CERTAIN PORTION OF THE PLOTS IN QUESTION WERE ACQUI RED BY THE TP AND STATE GOVERNMENT. THE TOWN PLANNING AUTHORITY, AWARDED A COMPENSATION OF RS. 2,38,00,000 TO THE OWNER MRS. SHEGULLABAI M. KHANDA LKAR. AGAINST THIS AWARD OF COMPENSATION, LAND ACQUISITION AUTHORITY F ILED A SUIT IN A BOMBAY HIGH COURT THAT THE AWARD WAS FOR IN EXCESS, ON THE OTHER HAND, THE OWNER MRS. SHEGULLABAI M KHANDKAR, ALSO, FILED A SUIT ASK ING FOR MORE COMPENSATION. BOTH THESE SUITS, FILED BY THE OWNER, AND THE LAND ACQUISITION AUTHORITY, ARE PENDING BEFORE THE HONB LE BOMBAY HIGH COURT. THE HONBLE COURT, HOWEVER, DIRECTED THE LADY TO KE EP A BANK GUARANTEE OF RS. 7,800,351. THIS WAS COUNTER GUARANTEED BY THE A SSESSEE, AS THE ASSESSEE HAD NOT MADE FULL PAYMENT TO THE OWNER AND WAS STRUCK WITH THE AGREEMENT ENTERED INTO BETWEEN THE OWNER AND THE AS SESSEE COMPANY. THE AO, WHILE DEALING WITH THIS ISSUE, REDUCED THIS FIG URE FROM THE OPENING WORK IN PROGRESS AND ADDED IT TO THE INCOME OF THE ASSES SEE. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT WINGS A AND B (PART) WERE NOT PART OF THE AGREEMENT AND SINCE THE LAND WAS IN POSSESSION OF THE ASSESSEE, THE AO COMPUTED THE PROPORTIONATE COST OF THAT PORTION AT RS. 6,26,720 AND ADDED IT TO THE INCOME OF THE ASSESSEE . 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E SPENT RS. 9,23,600 TOWARDS SETTLEMENT OF TENANTS ON ACCOUNT VARIOUS EX PENSES ON THEIR BEHALF, MAINLY ELECTRICITY AND SOCIETY FORMATION CHARGES. O UT OF THE TOTAL TWO TENANTS, IN AGGREGATE PAID RS. 30,000, BACK TO THE ASSESSEE. THE AO DISALLOWED THE BALANCE OF RS. 8,93,600 AS THERE WAS NO REVENUE. 5. THE AO, IT IS SEEN, DWELLED AND RESTRICTED HIMSE LF STRICTLY ON THE RECITALS OF THE AGREEMENTS, ENTERED INTO BY THE ASS ESSEE, WITH THE OWNER AND LATER ON WITH THE VENDOR DEVELOPER M/S RACHANA DEVE LOPERS. FROM THE SOF FILED BEFORE THE CIT(A) AND THE IMPUGNED ORDER OF C IT(A), THE ENTIRE FACTS CAN BE CULLED OUT, WHICH WILL BE DISCUSSED GROUND WISE. ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 4 6. GROUND NO. 1 HAS TWO COMPONENTS, RS. 19,89,118 AS CURRENT BUSIN ESS EXPENDITURE AND RS. 13,48,260, ADDITION TO WORK IN PROGRESS (WIP) FOR THE PERIOD 2002-03 TO 2005-06. 7. THE FACTS, AS PER THE SOF FILED BEFORE THE CIT(A) ARE THAT, THE FIRM VIDE AN AGREEMENT ENTERED INTO BY AND BET WEEN SMT. SHEGULLA M. KHANDALKAR, THE VENDOR, AND FIRM, THE FIRM PURCH ASED FIVE PLOTS OF LAND BEING F.P. NO. 359, 361, 362, 363 AND 365 SITU ATED AT PANVEL, DISTRICT RAIGAD AS PER DETAILS GIVEN BELOW: FINAL PLOT NO. AREA IN SQ. METE RS 359 3,591 SQ. MTS. 361 782 SQ. MTS. 362 2,324 SQ. MTS. 363 2,435 SQ. MTS. 365 12,145 SQ. MTS. TOTAL 21,277 SQ. MTS. THESE PLOTS BELONG TO A SINGLE OWNER WHO AGREED TO TRANSFER THESE PLOTS TO THE FIRM FOR A CONSIDERATION MUTUALLY AGREED UPO N. THERE WAS TIME SCHEDULE FOR THE PAYMENT OF THE PURCHASE CONSIDERAT ION. THESE PLOTS WERE PURCHASED ON AS IS WHERE IS BASIS AND THESE PLOTS WERE IN THE POSSESSION OF AGRICULTURAL TENANTS. THE MAIN INTENTION OF THE FIRM WAS TO DEVELOP THESE PLOTS OF LAND FOR RESIDENTIAL/COMMERCIAL PURPOSES BUT UNFORTUNATELY D UE TO VARIOUS PROBLEMS ATTACHED WITH THE SAID PLOTS, THE FIRM COU LD NOT START THE DEVELOPMENT ACTIVITIES EVEN AFTER GETTING THE POSSE SSION OF THE PLOT IN THE YEAR 2000. WITH REFERENCE TO PLOT NO. 359 THE FIRM COULD NOT D EVELOP THIS PLOT DUE TO VARIOUS REASONS TILL FINANCIAL YEAR 2002-2003. IN F ACT THE FIRM ENTERED INTO CONTRACT WITH MANY PARTIES FOR THE DEVELOPMENT OF THE SAID PLOTS BUT THEY LATER ON REFUSED TO HONOUR THE COMMITMENT AND ACCORDINGLY AGREEMENTS ENTERED INTO WITH THESE PARTIES WERE CAN CELLED. AT LAST, THE FIRM ENTERED IN TO A JOINT VENTURE WIT H A LOCAL PARTY NAMELY M/S RACHANA DEVELOPERS (THE DEVELOPER) WHO AGREED T O DEVELOP THE SAID PLOT ON FOLLOWING TERMS AND CONDITIONS. THE DEVELOPMENT WAS FOR THE CONSTRUCTION OF FIVE WI NGS I.E. A, B, C, D AND E. HOWEVER THE PARTY INITIALLY STARTED THE DEVELOPMENT OF C AND D WINGS ONLY. IT WAS AGREED THAT THE OTHER WINGS WILL BE STARTED ONLY AFTER GETTING A PROPER MARKET FOR T HE FLATS TO BE CONSTRUCTED ON THE SAID PLOT AND ALSO ON VACATING T HE SITTING TENANTS FROM THE PLOT. THE FIRM WAS TO PROVIDE LAND WITHOUT ANY CONSIDERAT ION. THE DEVELOPER WOULD CONSTRUCT THE BUILDING AT THEIR COST ONLY. OUT OF THE AREA / FLATS CONSTRUCTED THE DEVELOPER S HALL GIVE 35% OF THE CONSTRUCTED AREA TO THE FIRM AND THE BALANCE AREA WILL BE RETAINED BY THEM. YOUR APPELLANT FIRM WAS AT LIBERTY TO DISPOSE OF IT S 35% SHARE AS PER ITS CONVENIENCE. ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 5 HOWEVER, WINGS A AND B (PART) COULD NOT BE DEVELOPE D BECAUSE TENANT I.E. MR. L. B. KATHARE DID NOT VACATE THE PLOT. THE AO OBSERVED IN ASSESSMENT ORDER THAT DURING THE FINANCIAL YEARS 2002-2003 TO 2005-2006 THE FIRM INCURRED AN EXPENDI TURE OF RS. 3,337,378/- TOWARDS THE DEVELOPMENT CHARGES IN RESP ECT OF PLOT NO. 359. THE AO WHILE MAKING THE ASSESSMENT WAS OF THE VIEW THAT THESE EXPENDITURE INCURRED BY THE FIRM IS IN CONTRAST TO THE TERMS OF THE AGREEMENT ENTERED INTO BY THE FIRM WITH M/S RACHNA DEVELOPERS VIDE AGREEMENT DATED 14TH MARCH, 2002. HE FURTHER STATED THAT IT HAS BEEN CLEARLY SPELT OUT IN THE AGREEMENT THAT ALL THE EXP ENDITURE WILL BE BORNE BY THE DEVELOPERS I.E. M/S. RACHNA DEVELOPERS. THER EFORE, THE CLAIM OF EXPENDITURE ON PLOT NO. 359 AS CLAIMED BY THE APPEL LANT FIRM CANNOT BE ALLOWED. ACCORDINGLY, WHILE MAKING THE ASSESSMENT, THE AO DI SALLOWED THE DEVELOPMENT EXPENDITURE TO THE TUNE OF RS 3,337,378 /-. HOWEVER, HE BIFURCATED THESE EXPENSES BETWEEN THE ASSESSMENT YE ARS 2002-2003 TO 2005-2006 AND 2006-2007 AND TREATED THE SAME IN THE ASSESSMENT ORDER IN THE FOLLOWING MANNER : THE EXPENDITURE OF RS 1,989,118/- WHICH PERTAIN TO ASSESSMENT YEAR 2006-2007 WERE DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE FIRM. THE EXPENDITURE OF RS 1,348,260/- WHICH PERTAIN TO THE ASSESSMENT YEAR 2002-2003 TO 2005-2006 WAS DISALLOW ED BUT CONSIDERED THE SAME AS WORK-IN-PROGRESS OF THE FIRM AND ADDED THE SAME AMOUNT TO WORK-IN-PROGRESS. WHILE MAKING THE DISALLOWANCE OF RS. 1,989,118/- TH E AO STATED THAT SINCE THE ENTIRE EXPENDITURE OF CONSTRUCTION WAS T O BE BORNE BY M/S. RACHNA DEVELOPERS AS PER AGREEMENT DATED 1 4I MARCH , 2002, THERE WAS NO QUESTION OF INCURRING ANY EXPENDITURE ON VAR IOUS ACCOUNT AND FOR VARIOUS REASONS AND THEREFORE THE EXPENDITURE I NCURRED AFTER 14TH MARCH, 2002 CANNOT BE ALLOWED AS AN EXPENDITURE. WITH REGARD TO THE ABOVE EXPENDITURE OF RS. 1,989,1 18/- THE AO FAILED TO APPRECIATE THAT SOME OF THE EXPENDITURE WAS INCU RRED IN THE COMPLIANCE OF AGREEMENT DATED L4TH MARCH, 2002 AND ALSO NECESSARY TO INCUR OTHER DEVELOPMENT EXPENDITURE TO ENABLE THE D EVELOPER TO PERFORM ITS OBLIGATION. PLEASE NOTE THAT THE AO DISPUTED TH E EXPENDITURE WHICH WERE IN THE NATURE OF CONSTRUCTION OF COMPOUND WALL , LEVELLING OF GROUND AND GRASS CUTTING ETC. IT MAY PLEASE BE NOTED THAT WITHOUT INCURRING SUCH EXPENDITURE IT WAS NOT PRACTICAL AND POSSIBLE FOR THE DEVELOPER TO PERFORM THE OBLIGATIONS UNDER AGREEMENT DATED 14TH MARCH, 2002. ACCORDINGLY SUCH EXPENDITURE WAS INCURRED FOR THE P URPOSE OF BUSINESS OF THE ASSESSEE AND SHOULD BE ALLOWED AS DEDUCTION U/S 36(1) OF THE INCOME TAX ACT, 1961. HOWEVER, THE AO FAILED TO APP RECIATE THE CONTENTION OF THE APPELLANT AND DISALLOWED THE EXPE NDITURE. WITH REGARD TO EXPENDITURE OF RS. 1,348,260/- THE A O OBSERVED THAT THE EXPENDITURE WERE INCURRED FOR THE CONSTRUCTIONS OF RCC STRUCTURE AND FRAMEWORK ON B WING WHICH WAS IN THE POSSESSION O F TENANT AND THEREFORE IT WAS OUTSIDE THE SCOPE OF DEVELOPMENT A GREEMENT AND THEREFORE CANNOT BE ALLOWED EXPENDITURE BUT AT THE SAME TIME SINCE THIS ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 6 EXPENDITURE WAS IN RESPECT OF DEVELOPMENT PROPERTY IN THE POSSESSION OF FIRM IT CAN BE CONSIDERED AS WORK-IN-PROGRESS. A CCORDINGLY THE AO DISALLOWED THE SAID AMOUNT OF RS 1,348,260/- AN ADD ED BACK IN THE TOTAL INCOME OF THE ASSESSEE AND ALSO ADDED THE SAI D AMOUNT IN THE WORK-IN- PROGRESS OF YOUR APPELLANT FIRM. THE AO STATED IN THE ASSESSMENT ORDER THAT THE EXPE NSES OF RS. 1,348,260/- WAS FOR THE PERIOD 2002 TO 2005. PLEASE NOTE THAT THIS IS A FACTUAL ERROR BY THE ASSESSING OFFICER. THE EXPENDI TURE QUESTION WAS IN RESPECT OF CONSTRUCTION OF RCC STRUCTURE AND FRAMEW ORK ON B WING FOR THE PURPOSE OF SETTLEMENT OF TENANT MR. L. B. KATHA RE. DURING THE COURSE OF CONSTRUCTION, THE SAID TENANT CREATED THE NUISAN CE AND THE FIRM HAD TO STOP THE WORK IN THE HALF WAY AS HE HAD A MALAFI ED INTENTION OF GRABBING THE ENTIRE AREA FOR HIMSELF. HOWEVER, BY T HAT TIME AN AMOUNT OF RS. 1,348,260/- WAS ALREADY INCURRED AS STATED A BOVE. PLEASE NOTE THAT THIS EXPENDITURE IS NOT REALIZABLE FROM THE TE NANT. THE AO CONSIDERED THE SAID EXPENDITURE AS WORK-IN-PROGRESS WITHOUT REALIZING THE FACT THAT THE WORK-IN-PROGRESS IS TO BE VALUED AT LOWER OF COST PRICE OR NET REALIZABLE VALUE AS PER THE ACCOUNTING PRINC IPLES. SINCE IN THIS CASE THE EXPENDITURE WAS NOT REALIZABLE, THE FIRM C ONSIDERED THE SAME AS BUSINESS EXPENDITURE AND CLAIMED ACCORDINGLY. THE AO SHOULD HAVE APPRECIATED THAT THE ENTIRE EXPE NDITURE OF RS. 3,337,378/- WAS INCURRED DURING THE COURSE OF BUSIN ESS OF THE ASSESSEE, THE SAME WAS NEITHER OF A PERSONAL NATURE NOR OF A CAPITAL NATURE AND THEREFORE, SHOULD BE ALLOWED AS DEDUCTIO N U/S 36(1) OF THE INCOME TAX ACT, 1961 WHILE COMPUTING THE TOTAL INCO ME OF ASSESSEE. AS PER THE AGREEMENT BETWEEN THE APPELLANT AND M/S RACHNA DEVELOPERS, AT CLAUSE 3 PAGE 7 THE DEVELOPER HAD TO TAKE CARE OF SUCH EXPENDITURE. AS PER THE AO, ONLY THING THE APPELLAN T HAD TO DO WAS TO OBTAIN NOC FROM MSEB. HENCE THE CLAIM OF EXPENDITUR E OF RS. 1,989,L18/- WAS ADDED BACK BY THE AO. 8. THE AO, THEREFORE, DISALLOWED THE ENTIRE SUM, AG GREGATING TO RS. 33,37,378. 9. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), W HO, AFTER TAKING INTO CONSIDERATION THE ARGUMENTS, SOF, SUBMISSIONS AND E VIDENCE IN THE APB, AS WAS SUBMITTED BY THE ASSESSEE THAT, EXPENDITURE TO THE TUNE OF RS. 1,989,118/- IS INCURRED ON SUCH ITEMS AS EARTH FILL ING, CUTTING OF GROUND, SHIFTING OF NALLAS ETC. AT THE APPELLATE STAGE, IT WAS SUBMITTED THAT BEFO RE EXECUTION OF THE DEVELOPMENT AGREEMENT, IT SPENT RS 5,00,000 ON EARTH FILLING, RUBBLE MASONRY WALL, GRASS CUTTING AND LEV ELLING, NALLA DIVERTING AND FILLING. THEY WERE NECESSARY TO PROTE CT AND PRESERVE THE PROPERTY. ERECTION OF TEMPORARY OFFICE WAS NECESSARY FOR SELLING OF FLATS (35% OF TOTAL FLATS) ALLOTTED TO THE APPELLANT. FOR THE PURPOSE OF SALE, IT SPENT RS 6, 25,000 ON ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 7 TILING, PLUMBING, COLOURING, WATERPROOFING, POLISHI NG, CARPENTRY ETC FOR CONDITIONING OF FLATS (8 IN D WING AND 4 IN E WING). FOR THE PURPOSE OF SALE AND ALSO FOR SETTLING OLD TENAN TS RS 7,51,390 WAS SPENT ON TILING, PLUMBING, COLOURING, CARPENTRY ETC FOR CONDITIONING OF FLATS (6 IN B WING). IT PAID RS . 75,000/- FOR DEVELOPMENT OF ROAD AND THE SAME WAS AS PER THE AGR EEMENT. RS. 28,728 WAS PAID TO PANVEL MUNICIA1 CORPORATION AND RS 9,000 WAS PAID FOR REPAIRING OF B-004-(SOLD FLAT) A ND THE EXPENSES WERE TO REMOVE THE DEFECTS. THIS WAS DAMAG ED DUE TO FLOOD LIKE SITUATION ON 26/7/2005 AND WAS NECESSARY FOR SELLING OF FLATS (35% OF TOTAL FLATS) ALLOTTED TO T HE APPELLANT. ON THIS GROUND OF APPEAL THE APPELLANT HAS ALSO SUB MITTED THAT THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT O F BUSINESS NECESSITY OR EXPEDIENCY. RELIANCE WAS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF SRI VENKATA SATYAN ARAYANA RICE MILL CONTRACTORS CO. VS CIT, REPORTED IN 223 I TR 101 (SC), WHEREIN IN IT IS HELD THAT THE EXPENSES HAVE TO BE SEEN FROM THE POINT OF A BUSINESSMAN. 10. THE CIT(A), THUS OBSERVES, I HAVE CONSIDERED THE SUBMISSION MADE BY THE APPELL ANT AND HAVE PERUSED THE SUPPORTING EVIDENCES ENCLOSED IN T HE PAPER BOOK. IT IS NOT IN DISPUTE THAT A WING AND PART OF B WING ARE KEPT BY THE APPELLANT FOR HOUSING THE OLD TENANTS. IT IS ALSO NOT IN DISPUTE THAT THE APPELLANT IS ENTITLED TO SALE 3 5% OF THE FLATS IN OTHER BUILDINGS. EXPENSES ON LEVELING, EARTH FIL LING ETC. IS NECESSARY FOR SALE OF THE LAND. EXPENSES ON ERECTIO N OF THE TEMPORARY OFFICE AND ON MAINTENANCE OF THE FLATS IN SALEABLE CONDITION ARE FOR THE PURPOSE OF THE BUSINESS. PAYM ENTS TO THE MUNICIPAL CORPORATION ARE ALSO IN THE COURSE OF THE BUSINESS. EXPENSES INCURRED BY THE APPELLANT ARE IN THE COURS E OF IMPLEMENTATION OF THE AFORESAID DEVELOPMENT AGREEME NT MAINLY BY WAY OF SETTLEMENT WITH EXISTING TENANTS AND OCC UPANTS OF THE PLOT OF LAND AND FOR SALE OF THE FLATS. I AM SA TISFIED THAT THE EXPENSES OF RS. 19,89,118/- ARE INCURRED IN THE COU RSE OF THE BUSINESS OF THE APPELLANT AND THE SAME ARE ALLOWABL E EXPENSES TO ARRIVE AT THE BUSINESS INCOME. THE DISALLOWANCE OF RS. 19,89,118/- MADE BY THE AO IS HEREBY DELETED . AS REGARDS THE ADDITION OF EXPENSES OF RS. 13,48,26 0/- TO THE WORK IN PROGRESS. THE AO HAS HELD THAT THOSE EXPEN SES WERE NOT REQUIRED TO BE DONE BY THE APPELLANT. AS PER TH E TERMS OF AGREEMENT WITH M/S RACHNA DEVELOPERS ALL THE EXPEND ITURE IS TO BE BORNE OUT BY THE DEVELOPER. BEFORE ME THE APPELLANT HAS SUBMITTED THAT A PORTIO N OF THIS EXPENDITURE AMOUNTING TO RS. 175,000 RELATES TO REP AIRING OF COMPOUND WALL WHICH WAS DONE DUE TO UNPRECEDENTED R AINS ON 26TH JULY 2005. BALANCE EXPENDITURE OF RS. 1,176,75 0/-WAS INCURRED BY THE APPELLANT FOR CONSTRUCTION OF RCC C OLUMNS, BEAMS, PARDI, SLABS FOR 2ND, 3RD, 4TH FLOOR IN B WING. IT WAS PROPOSED BY THE APPELLANT TO CONSTRUCT ALTERNATIVE ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 8 ACCOMMODATION FOR THE SITTING TENANT MR. L.B. KATHA RE. THE EXPENDITURE WAS INCURRED WITH A VIEW TO SETTLE THE CLAIM OF THE SAID TENANT WHICH COULD HAVE PUT TO THE APPELLANT T O A GREAT ADVANTAGE. HOWEVER, MR. KATHARE COULD NOT BE PERSUA DED AND THE EXPENDITURE DID NOT YIELD ITS INTENDED PURPOSE. UNCOMPLETED WORK ON WHICH THIS RS. 1,176,750/- WAS INCURRED IS STILL THERE AT THE PREMISES AS IT WAS. IT IS SUBMITTED THAT THE AO HAS DISALLOWED THE APPELLANTS CLAIM OF DEDUCTION OF TH IS EXPENDITURE ON ENTIRELY UNTENABLE GROUNDS. IT IS IM MATERIAL AS TO WHETHER OR NOT THIS PORTION OF THE PLOT FORMS PA RT OF DEVELOPMENT AGREEMENT WITH M/S RACHNA DEVE1OPERS. T HE EXPENDITURE HAS BEEN INCURRED WITH A VIEW TO SETTLE THE CLAIM OF THE SAID TENANT. EVEN THOUGH THE WORK WAS SUBSEQUEN TLY ABORTED IT QUALIFIES FOR DEDUCTION AS HAVING BEEN I NCURRED FOR THE PURPOSE OF SETTLING THE CLAIM OF THE TENANT AND THEREFORE THE EXPENDITURE IS CLEARLY REVENUE EXPENDITURE. IT WAS AGAIN REITERATED THAT ENTIRE EXPENDITURE HAS BEEN INCURRE D BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THE APPELLANT HAS RELIED ON THE DECI SION CITED HEREIN ABOVE. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. THE AO HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE. HE HAS NOT DISPUTED OR BROUGHT ON RECORD ANYTHING TO SUGGEST T HAT THERE WAS ANY ULTERIOR MOTIVE OR EXTRA COMMERCIAL CONSIDE RATION FOR INCURRING SUCH EXPENDITURE. AS A MATTER OF FACT, IT APPEARS THAT THE AO DID NOT FULLY GRASP THE FACTS OF THE CASE AN D THE DISALLOWANCE HAS BEEN MADE ON MISAPPRECIATION OF FA CTS. THE EXPENDITURE OF RS. 11,76,750/- IS INCURRED FOR MR. KATHARE, A TENANT, ON THE AREA WHICH HAS BEEN EXCLUDED FROM TH E AGREEMENT BETWEEN THE APPELLANT AND M/S RACHNA DEVE LOPERS. THE WORK WAS DONE BY M/S SCARLET CORPORATION. ITS B ILL IS DATED 15TH DECEMBER, 2005. IT SHOWS THAT THE EXPENDITURE ON RCC COLUMNS, BEAMS ETC IS INCURRED FOR SECOND TO FOURTH FLOOR IN B WING AND FOR REPAIRING OF THE COMPOUND WALL. THE BI LL IS IN THE NAME OF THE APPELLANT. DEVELOPMENT AGREEMENT DATED 14TH MARCH 2002 REFERS THE NAME OF SHRI L.R. KHATARE AS THE KUL (AGRICULTURAL TENANT) AS HOLDING RIGHT AS A TENANT FOR 250 SQ. MTRS. OF THE PLOT OF LAND, SINCE THE DEVELOPMENT OF PART B WING FOR SETTLEMENT OF THE TENANT WAS NOT DONE BY RACHNA , THE APPELLANT HAS SPENT THE AMOUNT FOR RCC ETC. AS PER THE DEVELOPMENT AGREEMENT IT IS THE RESPONSIBILITY OF T HE APPELLANT TO SETTLE THE TENANTS AND THE DEVELOPER SHALL NOT B E CALLED UPON TO INCUR ANY EXPENDITURE FOR THE SAME. THERE CAN BE NO DISPUTE THAT THE EXPENDITURE IS INCURRED BY THE APPELLANT A ND HAVING SPENT ON THE DEVELOPMENT OF AREA FOR HOUSING THE TE NANTS THE REALIZABLE VALUE IS NIL. AS REGARDS THE RELIANCE OF THE APPELLANT ON THE DECISION OF THE SUPREME COURT (SUPRA) THE EX PENSES INCURRED BY THE APPELLANT ARE FOR THE BUSINESS PURP OSE ONLY. IN VIEW OF THIS THE EXPENDITURE OF RS 13,48,260/- NEED S TO BE ALLOWED AND THE ADDITION MADE TO THE WORK IN PROGRE SS BY THE AO IS HEREBY DELETED . ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 9 11. THE CIT(A), THEREFORE, DELETED THE ADDITIO N MADE BY THE AO. 12. THE DEPARTMENT IS CONTESTING THE OBSERVATION OF THE CIT(A) AND THE DR SUPPORTED THE ORDER OF THE AO. 13. ON THE OTHER HAND, THE AR RELIES ON THE DECISIO N OF THE CIT(A), ALLOWING THE CLAIM OF EXPENSES. THE AR ALSO SUBMITT ED THAT THE AO HAS ACCEPTED THAT THE EXPENSES ARE IN THE NATURE OF BUS INESS, BUT CANNOT BE ALLOWED BECAUSE THEY STRICTLY DID NOT ADHERE TO THE SCOPE OF WORK ALLOWED IN THE AGREEMENTS WITH THE OWNER AND RACHNA. BUT AN OV ERALL VIEW SHOULD BE TAKEN BECAUSE BUSINESS MEANS HAS SOME INCIDENTAL EX PENSES AS WELL, WHICH ARE PART AND PARCEL OF THE EXPENSES. 14. WE HAVE HEARD THE ARGUMENTS OF THE DR AND NOTED THE GRIEVANCE BEING TAKEN UP AND ALSO PERUSED THE IMPUGNED ORDER OF THE CIT(A). WE FIND THAT THE CIT (A) HAS TAKEN INTO CONSIDERATION ENTIRE FAC TS AS WELL AS CASE LAWS CITED BEFORE HIM. THE CIT(A) HAS TAKEN A CONSIDERED VIEW IN THE MATTER, WHICH ACCORDING TO US IS VERY REASONABLE AND IS IN LINE WITH THE BUSINESS NORMS AND HAS CERTAIN PERIPHERAL EXPENSES, WHICH UN DER BUSINESS PRUDENCE CANNOT BE IGNORED. 15. AFTER CAREFUL CONSIDERATION, WE DO NOT INTEND T O DISTURB THE LOGICAL AND CORRECT FINDINGS OF THE CIT (A), WHICH WE SUSTAIN. 16. THE GROUND IS THUS REJECTED. 17. GROUND NO.2 RELATES TO ADDITION OF RS. 78,00,35 1, WHERE THE FACTS ARE, AFTER THE ACQUISITION OF THE AFORESAID PROPERTY, BU T BEFORE STARTING THE DEVELOPMENT THEREOF, THE LAND ACQUISITION OFFICER S TARTED PROCEEDINGS TO ACQUIRE THE AFORESAID LAND FOR THE PURPOSE OF INSTA LLATION OF RAILWAY LINE ON THE AFORESAID PLOT. ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 10 18. IN THE PROCESS, COLLECTOR OF RAIGAD AWARDED T HE COMPENSATION FOR THE AREA ACQUIRED. SINCE THE COMPENSATION GRANTED WAS V ERY MEAGRE, AN APPEAL WAS FILED UNDER REFERENCE 18 OF LAND ACQUISITION AC T BY MRS. SHEGULLABAI M. KHANDALKAR IN PANVEL COURT FOR ENHANCEMENT OF THE C OMPENSATION GRANTED BY THE COLLECTOR. 19. IN RESPONSE TO THE SAID APPEAL THE CIVIL JUD GE (SR. DVN.) PANVEL AT PANVEL VIDE L.A.R. NO. 70/96 AWARDED THE COMPENSATI ON WHICH WORKED OUT TO RS. 23,800,000/-. 20. SINCE THE PLOT WAS PURCHASED BY THE FIRM ON AS IS WHERE IS BASIS ALONG WITH ALL RIGHTS PRIVILEGES AND OBLIGATIONS TH E FIRM WAS ENTITLED FOR A PROPORTIONATE COMPENSATION AMOUNT AWARDED BY THE CI VIL JUDGE (SR. DVN.) PANVEL AT PANVEL FROM LAND LADY MRS. SHEGULLABAI M. KHANDALKAR AMOUNTING TO RS. 7,800,351/-. 21. AGAINST THE SAID JUDGMENT, THE LAND ACQUISIT ION AUTHORITIES FILED A SUIT IN BOMBAY HIGH COURT SINCE IN THEIR OPINION TH E COMPENSATION AWARDED BY THE CIVIL JUDGE (SR. DVN.) PANVEL AT PANVEL WAS ON A HIGHER SIDE. AT THE SAME TIME MRS. SHEGULLABAI M. KHANDALKAR ALSO FILED AN APPEAL IN BOMBAY HIGH COURT SINCE IN HER OPINION COMPENSATION AWARDE D BY THE CIVIL JUDGE (SR. DVN.) PANVEL AT PANVEL WAS ON A LOWER SIDE. 22. IN THE MEANTIME, AND PENDING THE FINAL DECISION IN THIS MATTER MRS. SHEGULLABAI M. KHANDALKAR BY SUBMITTING THE APPROPR IATE BANK GUARANTEE BEFORE THE PANVEL COURT FOR WITHDRAWING THE AWARDED COMPENSATION FROM THE STATE GOVERNMENT. 23. THE APPELLANT IN TURN SUBMITTED THE COUNTER BANK GUARANTEE TO THE LANDLADY MRS. SHEGULLABAI M. KHANDALKAR AND ON SUBM ISSION OF THE BANK GUARANTEE THE SAID LANDLADY PASSED-ON THE PROPORTIO NATE COMPENSATION OF RS. 7,800,351/- TO THE FIRM. ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 11 24. THE AO, AFTER CONSIDERING THE SUBMISSIONS MAD E BY THE ASSESSEE, STATED THAT WHILE COMPUTING THE PROFIT & LOSS ACCOUNT THE ASSES SEE HAS TAKEN INTO ACCOUNT THE WHOLE EXPENDITURE MADE TOWARDS LAN D COST, THEN WHATSOEVER AWARD RECEIVED AGAINST THE ACQUISITION OF LAND BY T OWN PLANNING AUTHORITY HAS TO BE DEDUCTED FROM THE LAND COST . ACCORDINGLY THE AO REDUCED THE SAID AMOUNT FROM THE OPENING WORK-IN-PROGRESS AND ADDED THE SAID AMOUNT TO THE FINAL INCOME RETURNED BY YOUR APPELLANT. 25. THE AO, THUS ADDED IT BACK TO THE INCOME OF THE ASSESSEE. 26. BEFORE THE CIT(A), THE ASSESSEE PLACED ALL TH E RELEVANT MATERIALS AND REITERATED ITS FACTS. THE CIT(A), AFTER CONSIDERING THE ENTIRE MATERIAL PLACED BEFORE HIM, OBSERVED, IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION, INCOME HAS NOT ACCRUED TO THE APPELLANT AND THE COMPENSATION I S NOT FINAL. HENCE THE AMOUNT CAN NOT BE TREATED AS THE AMOUNT B ELONGING TO THE APPELLANT. THE AMOUNT IS ONLY A CONTINGENT R ECEIPT. THE SAME CAN NOT BE REDUCED FROM VALUE OF THE LAND AND CAN NOT BE CONSIDERED TO INCREASE THE INCOME. THE APEX COURT D EALT WITH THE SIMILAR FACTS IN CIT VS. HINDUSTAN HOUSING & LA ND DEVELOPMENT TRUST LTD. (1986) 161 ITR 524 (SC). IN THAT CASE CERTAIN LAND BELONGING TO THE ASSESSEE HAD BEEN ACQ UIRED BY THE STATE. THE LAND ACQUISITION OFFICER AWARDED CER TAIN COMPENSATION. THE ASSESSEE FILED AN APPEAL AND THE ARBITRATOR ENHANCED THE COMPENSATION. THEREAFTER THE STATE GOV ERNMENT FILED AN APPEAL IN THE HIGH COURT. THE ENHANCED AMO UNT WAS DEPOSITED IN THE COURT AND THE RESPONDENT WAS PERMI TTED TO WITHDRAW THAT AMOUNT ON FURNISHING A SECURITY BOND FOR REFUNDING THE AMOUNT IN THE EVENT OF IT BEING ALLOW ED. ON RECEIVING THE AMOUNT THE ASSESSEE CREDITED IT IN IT S SUSPENSE ACCOUNT. THE QUESTION WAS WHETHER THIS ENHANCED AMO UNT COULD BE TAXED AS THE INCOME OF THE RESPONDENT FOR THE ASSESSMENT YEAR IN WHICH THE ARBITRATOR HAD MADE TH E AWARD OR FOR THE YEAR IN WHICH THE AMOUNT WAS ACTUALLY RE CEIVED BY THE ASSESSEE. THE SUPREME COURT HELD AS FOLLOWS: THERE IS A CLEAR DISTINCTION BETWEEN CASES SUCH AS THE PRESENT ONE, WHERE THE RIGHT TO RECEIVE PAYMENT IS IN DISPUTE AND IT IS NOT A QUESTION OF MERELY QUANTIFY ING THE AMOUNT TO BE RECEIVED, AND CASES WHERE THE RIGHT TO RECEIVE PAYMENT IS ADMITTED AND THE QUANTIFICATION ONLY OF THE AMOUNT PAYABLE IS LEFT TO BE DETERMINED IN ACCORDANCE WITH SETTLED OR ACCEPTED PRINCIPLES. IT WAS HELD THAT INCOME DID NOT ACCRUE TO THE ASSES SEE WHERE, THOUGH THE ARBITRATOR AWARDED ENHANCED COMPENSATION FOR ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 12 ACQUISITION OF ASSESSEES LAND, THE STATE GOVERNMEN T HAD FILED APPEAL THERE AGAINST AS THE VERY RIGHT OF ASSESSEE TO RECEIVE ENHANCED COMPENSATION WAS PUT IN JEOPARDY. THUS, THE ASSESSEE BECOMES ENTITLED TO THE AMOUNT O NLY WHEN NO DISPUTE REMAINS IN REGARD THERETO AND THE AWARD HAD BECOME FINAL. THE ABOVE REFERRED SUPREME COURT DEC ISION IS FOLLOWED BY THE JURISDICTIONAL MUMBAI HIGH COURT IN THE CASE OF CIT VS ABDUL MANNAN SHAH MOHAMMED, REPORTED IN 248 ITR 614 (BORN). IN THAT CASE ALSO LANDS OWNED BY ASSESS EE WERE ACQUIRED UNDER LAND ACQUISITION ACT. THE STATE GOVE RNMENT MOVED THE HIGH COURT AGAINST THE AWARD MADE IN FAVO UR OF ASSESSEE WHICH INCLUDED INTEREST ON ADDITIONAL COMP ENSATION. IT IS HELD THAT PENDING THE APPEAL, EVEN THOUGH THE AS SESSEE WAS PERMITTED TO WITHDRAW THE AMOUNT WHICH WAS DEPOSITE D IN COURT ON GIVING SECURITY, IT WAS NOT TAXABLE AT THA T STAGE. IN THE CASE OF CIT VS SARVATRA ROADRUNNERS (P) LTD., REPOR TED IN 301 ITR 443 (DEL), HONOURABLE DELHI HIGH COURT WHILE DE ALING WITH THE AMOUNT RECEIVED ON ARBITRATION AWARD ALSO HELD THAT IF APPEAL IS PENDING NO INCOME ACCRUES TO THE ASSESSEE . CONSIDERING THE FACTS OF THE CASE AND THE CASE LAWS I HOLD THAT THE AO HAS ERRED IN REDUCING RS 78,00,351/- FROM TH E WORK IN PROGRESS. THE ADDITION IS DELETED AND THIS GROUND O F APPEAL IS ALLOWED. 27. THE CIT(A), THEREFORE, DELETED THE ADDITION. 28. THE DEPARTMENT IS IN APPEAL BEFORE THE ITAT. 29. BEFORE US, THE DR FORCEFULLY RELIED ON THE OBSE RVATIONS MADE IN THE ASSESSMENT ORDER. ON THE OTHER HAND, THE AR, REFERR ING TO THE DECISION OF CIT VS GHANSHYAM (HUF), REPORTED IN 315 ITR 1, WHER EIN, THE HONBLE SUPREME COURT HAD HELD THAT COMPENSATION SHALL BE T AXABLE, HENCE THE DECISION OF THE CIT(A) IS AGAINST THE RATIO LAID DO WN BY THE HONBLE APEX COURT. 30. ON THE OTHER HAND, THE AR SUPPORTED THE DECISIO N OF THE CIT(A) ON THE FACTUAL BASIS AND ALSO COUNTERED THE DECISION REFER RED TO BY THE DEPARTMENT IN THE GOA, BY SAYING THAT PATENTLY, THE DECISION W AS DISTINGUISHABLE ON FACTS, THAT THE PROPERTY IN ISSUE IN THE CASE OF GH ANSHYAM (HUF) WAS IN THE NOTICE OF CAPITAL ASSET WHEREAS, THE PROPERTY IN IS SUE IN THE PRESENT CONTEXT IS SIT. THE AR REFERRED TO THE DECISION AT PAGES 31 4, PLACITUM 27 , AND 315, ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 13 PLACITUM 28 , WHEREIN, THE HONBLE APEX COURT, ITSELF, DISTINGU ISHED THE DECISION OF HINDUSTAN HOUSING, REPORTED IN 161 ITR 524 (SC), WHERE THE ASSESSEE WAS DEALING IN LAND AND WAS MAINTAINING IT S BOOKS ON MERCANTILE SYSTEM. THEREFORE THE BASIS OF GROUND OF APPEAL ITS ELF, STANDS DEMOLISHED. THE AR ALSO, CITED THE CASE OF CIT VS SHARDA SUGAR INDUSTRIES LTD., REPORTED IN 239 ITR 393, WHEREIN HONBLE BOMBAY HIGH COURT O BSERVED, THAT WHERE THE RIGHT TO RECEIVE PAYMENT IS IN DISP UTE, NO INCOME WILL ARISE OR ACCRUE. IN THE PRESENT CASE, A DMITTEDLY, THE AMOUNTS IN QUESTION WERE COLLECTED AND RETAINED BY THE ASSESSEE AS DEPOSITS PENDING THE FINAL DECISION OF THE WRIT PETITION BY THE ALLAHABAD HIGH COURT PURSUANT TO TH E INTERIM ORDER OF THAT COURT AND THAT TOO SUBJECT TO FURNISH ING A BANK GUARANTEE IN RESPECT THEREOF. THERE WAS A SERIOUS D ISPUTE ABOUT THE RIGHT OF THE ASSESSEE TO RECEIVE THE AMOUNT COL LECTED BY THE ASSESSEE. IN OTHER WORDS, THE RIGHT TO RECEIVE THE AMOUNT WAS INCHOATE OR CONTINGENT. THE EXTRA AMOUNT DID NOT AC CRUE TO THE ASSESSEE UNTIL THE FINALISATION OF THE DISPUTE PEND ING IN THE COURT IN FAVOUR OF THE ASSESSEE. THE ASSESSEE WAS A CCOUNTABLE FOR THE EXCESS COLLECTION AND OBLIGED TO REFUND THE SAME IF SO DIRECTED BY THE COURT. SUCH AMOUNTS COLLECTED BY TH E ASSESSEE WERE NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE IN THE ASSESSMENT YEARS UNDER CONSIDERATION. 31. WE HAVE HEARD THE CONTENTIONS OF EITHER SIDE. F ROM THE FACTS AS MENTIONED IN THE SOF AND IN THE SUBMISSIONS MADE BE FORE US, WE ARE CONVINCED THAT THE AMOUNT CANNOT BE TREATED TO BE BELONGING TO THE ASSESSEE TILL THE FINALITY IS ARRIVED, AS HAS BEEN HELD BY T HE DECISION BY THE HONBLE BOMBAY HIGH COURT AND TILL SUCH TIME, THE IMPUGNED AMOUNT CANNOT BE TAXABLE, AS THIS WOULD REMAIN A CONTINGENT LIABILIT Y. ON THESE OBSERVATION, WE AGREE WITH THE DECISION OF THE CIT(A), WHICH WE SUSTAIN, AND FIND NO REASON TO DISTURB. 32. THE GROUND IS THUS REJECTED. 33. GROUND NO. 3 IS DISALLOWANCE OF RS. 6,26,720 ON ACCOUNT OF PROPORTIONATE COST OF LAND. FROM THE FACTS AS STAT ED IN THE SOF ARE, THAT THE AO STATED IN THE ASSESSMENT ORDER THAT AS PER PURCHASE AGREEMENT WITH LANDLADY MRS. SHEGULLABAI M . KHANDALKAR YOUR APPELLANT PURCHASED THE WHOLE LAND OF PLOT NO. 359, 361, 362, 363 & 365 FOR WHICH THE PAYMENT WAS MADE BY YOUR APPELLANT. THE AO FURTHER STATED THAT SINCE WING A & B (PART) WAS OUTSIDE THE PURVIEW OF THE APPELLA NT FIRM THE ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 14 PROPORTIONATE COST OF WING A & B (PART) SHOULD APPE ARED AS CLOSING STOCK WHILE PREPARING THE ACCOUNT FOR THE Y EAR ENDED 31ST MARCH, 2006. 34. THE AO, THEREFORE, ADDED BACK RS. 6,26,720 T O THE INCOME OF THE ASSESSEE. 35. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A ), WHO OBSERVED, I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT IS NOT IN DISPUTE THAT SHRI. L. B. KATHARE WAS THE OCCUPANT. DEVELOPMENT AGREEMENT DATED 14TH MARCH 2002 REFERS THE NAME OF SHRI L.R. KHATARE AS THE KUL (AGRICULTURAL TENANT) AS HOLDING RIGHT AS A TENANT FOR 250 SQ. MTRS. OF THE PLOT OF LAND. THE D EVELOPMENT AGREEMENT WAS POSSIBLE ONLY BECAUSE OF SETTLEMENT O F THE TENANTS BY THE APPELLANT. IT WAS AGREED WITH THE TE NANTS THAT THEY WILL BE HOUSED IN A AND B (PART) WINGS. IT WAS DUE TO THIS ARRANGEMENT THAT THE CONSTRUCTION FOR THE BALANCE O F THE AREA WAS POSSIBLE. THIS ONLY RESULTED IN THE APPELLANT D ERIVING INCOME ON SALE OF 35% OF THE AREA. HENCE THE LAND C AN NOT BE NOW STATED AS AVAILABLE TO THE APPELLANT. AS PER TH E ACCOUNTING PRINCIPLES THE EXPENDITURE/COST WHICH IS NEITHER RE COVERABLE NOR REALIZABLE CANNOT FORM PART OF THE CLOSING WORK IN PROGRESS. THE WORK IN PROGRESS IS TO VA1UED AT COST OR NET REALIZ ABLE VALUE. UNDER THE CIRCUMSTANCES THE CALCULATING PROPORTIONA TE COST OF LAND OF RS. 626,720/- IS AGAINST THE ACCOUNTING PRI NCIPLES (ACCOUNTING STANDARD 2). IN VIEW OF THIS THE ACTION OF THE AO IN ADDING RS. 626,720/- BEING THE PROPORTIONATE COST O F THE LAND TO CLOSING WORK-IN- PROGRESS IS NOT CORRECT. I DELETE THE ADDITION AND THIS GROUND OF APPEAL IS ALLOWED . 36. THE CIT(A), THUS DELETED THE ADDITION MADE BY THE AO. 37. AGGRIEVED THE DEPARTMENT IS BEFORE THE ITAT . 38. BEFORE US, THE DR RELIED ON THE DECISION TAKEN BY THE AO, WHILE THE AR RELIED ON THE DECISION OF THE CIT(A). 39. WE HAVE GONE THROUGH THE ORDER OF THE REVENUE A UTHORITIES AND HAVE PERUSED THE MATERIAL ON RECORD AND THE SUBMISSIONS MADE AT THE TIME OF HEARING. WE ARE NOT CONVINCED WITH THE OBSERVATIONS MADE BY THE AO, IN FACT, THE CIT(A), HAS HELD THAT THE WIP, WHICH HAS TO BE CALCULATED AT COST OR ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 15 NET REALISABLE VALUE AND, IN A CASE WHERE SOMETHING IS EXPENDED AND NO RESULTANT BENEFIT CAN BE ACHIEVED OUT OF IT, THAT E XPENSE, CANNOT BE ADDED TO WIP. THIS, ACCORDING TO THE CIT(A), IS AGAINST THE ACCOUNTING PRINCIPLES, AND ALSO, PRESCRIBED BY THE ICAI. 40. WE ARE IN AGREEMENT, WITH THE OBSERVATION OF TH E CIT(A) THAT THE ASSESSEE WAS UNDER LEGAL OBLIGATION TO SETTLE THE C LAIM MR. L.B. KATHARE, WHO WAS OCCUPYING THE PLOT AND WAS CREATING ROAD BLOCKS IN THE DEVELOPMENT ACTIVITY AND THE AMOUNT WAS SPENT ON THAT, AND ON S UCH UNTOWARD CIRCUMSTANCE. THEREFORE, ADDING THE EXPENSE, THOUGH NOT IN THE RECITALS, TO THE CLOSING WIP, THEREBY, INCREASING NET ARTIFICIAL PROFITABILITY WAS NOT CALLED FOR. 41. WE, THEREFORE, SUSTAIN THE DECISION OF THE CIT( A) AND REJECT THE GROUND TAKEN BY THE DEPARTMENT. 42. THIS GROUND IS THUS REJECTED. 43. GROUND NO. 4 PERTAINS TO ALLOWANCE OF RS. 8,93, 600 AS BUSINESS EXPENDITURE THE ASSESSEE, FOR THE PURPOSE OF SETTLE MENT WITH EXISTING TENANTS EXPENDED RS. 9,23,600, ON ACCOUNT OF ELECTRIC, WATE R AND SOCIETY PAYMENTS. AGAINST THESE, THE ASSESSEE WAS ABLE TO RECOVER RS. 30,000 FROM TWO PERSONS, THUS THE NET PAYMENT MADE BY THE ASSESSEE WAS RS. 8,93,600, DETAIL OF WHICH WAS PROVIDED BY THE ASSESSEE TO THE AO. THE AO DISALLOWED THE EXPENSE OF RS. 8,93,600 AS THE ASSESSEE HAD NOT SHOWN THE REVENUE GENERATED, I.E. RS. 30,000. 44. BEFORE THE CIT(A), THE ASSESSEE REITERATED ITS SUBMISSIONS AND THE CIT(A), AFTER CONSIDERING ITS ARGUMENTS OF THE ASSE SSEE, ALLOWED THE EXPENSES HOLDING, I HAVE CONSIDERED THE FACTS OF THE CASE. THE ENTIR E EXPENDITURE RS. 8,93,600/- WAS TOWARDS SETTLEMENT OF TENANTS AN D WITHOUT REHABILITATING THEM IT WAS NOT POSSIBLE TO DEVELOP THE PROPERTY AND ACCORDINGLY THE EXPENDITURE FOR INCURRED THE PU RPOSE OF THE ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 16 BUSINESS OF THE ASSESSEE. MOREOVER IT WAS NECESSARY TO MAKE DEPOSITS FOR ELECTRICITY, SOCIETY FORMATION ETC. TH E APPELLANT COLLECTED THE AMOUNT THAT IT COULD RECOVER. FOR COM PLETION OF THE PROJECT IT PAID BALANCE AMOUNT AND THEN ONLY THE PR OJECT COULD BE COMPLETED. THE ASSESSEE IS THE BEST JUDGE OF HIS BUSINESS AND THE SUPREME COURT ECHOING THE SAME JUDGEMENT HA S HELD IN EASTERN INVESTMENTS LTD V/S CIT (1951) 20 ITR (1). THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THINGS CAN BE BR OUGHT ABOUT IN BUSINESS ACTIVITY BUT IT IS NOT FOR THE CO URT TO DECIDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED. HENCE ENT IRE EXPENSES DEBITED BY THE APPELLANT ARE FOR THE PURPO SE OF THE BUSINESS OF THE APPELLANT. I DELETE THE ADDITION OF RS 8,93,600/- . THIS GROUND IS ALLOWED. 45. AGAINST THESE OBSERVATIONS, THE DEPARTMENT I S IN APPEAL BEFORE THE ITAT. 46. BEFORE US THE DR RELIES ON THE ORDER OF THE AO. 47. THE AR, ON THE OTHER HAND RELIES ON THE DEC ISION OF THE CIT(A). 48. WE HAVE PERUSED THE ORDERS OF THE ORDERS OF THE CONTESTING PARTIES AND WE FIND THAT THE PAYMENTS MADE BY THE ASSESSEE WAS ENTIRELY ON ACCOUNT OF IMMEDIATE BUSINESS NECESSITY, WHICH THE CIT(A), HAS IN THE IMPUGNED ORDER OBSERVED. 49. WE, THEREFORE, ARE NOT INCLINED TO INTERFERE IN THE DECISION OF THE CIT(A), TAKEN ON THIS ISSUE. 50. THUS, GROUND, IS THEREFORE, REJECTED. 51. GROUNDS NO 5 & 6 ARE GENERAL AND NEED NO COMMEN TS. 52. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 0/10/ 2012 ASSOCIATED BUILDERS & LAND DEVELOPERS ITA NO.5439/MUM/2009 17 SD/- (P.M. JAGTAP) ACCOUTANT MEMBER SD/- ( VIVEK VARMA ) JUDICIAL MEMBER MUMBAI, DATE: 10/10/ 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-XIX, MUMBAI. 4) THE CIT-19, MUMBAI. 5) THE D.R. G BENCH, MUMBAI. 6) COPY TO GUARD FILE. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN