Kailash Nath & Associates, V. ITO, Ward-31(2),

ITA 5594/DEL/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1329 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-08-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 24-12-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: H K LAL; NAVNEET SON I
• Assessee Lawyers: S D KAPILA; R R MOURYA
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI (SPECIAL BENCH ) BEFORE SHRI G.E. VEERABHADRAPPA : VICE PRESIDENT; A ND SRHI R.P. TOLANI : JUDICIAL MEMBER; AND SHRI I.P. BANSAL : JUDICIAL MEMBER ITA NO. 5594/DEL/04 ASSTT. YR: 2001-02 M/S KAILASH NATH & ASSOCIATES VS. INCOME-TAX OFFIC ER, 1006, KANCHANJUNGA BUILDING, WARD 31(2), NEW DEL HI. 18, BARAKHAMBA ROAD, NEW DELHI. PAN/ GIR NO. AND ITA NO. 5743/DEL/04 ASSTT. YR: 2001-02 INCOME-TAX OFFICER, VS. M/S KAILASH NATH & ASSOCI ATES WARD 31(2), NEW DELHI. 1006, KANCHANJUNGA BUILDIN G, 18, BARAKHAMBA ROAD, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI S.D. KAPILA & SHRI R.R. MOURYA ADV. RESPONDENT BY : NAVNEET SONI & SRI H.K. LAL SR. DR O R D E R PER G.E. VEERABHADRAPPA, V.P: THESE ARE CROSS APPEALS ARISING OUT OF THE ORDER D ATED 6-10-2004 OF THE CIT(APPEALS)-26, NEW DELHI, FOR THE ASSESSMENT YEAR 2001-02.. ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 2 2. WHEN THE APPEALS CAME UP FOR HEARING BEFORE THE DIVISION BENCH, THE MEMBERS OF THE DIVISION BENCH WERE OF THE VIEW THAT THESE APPEALS WERE FIT AND PROPER APPEALS, WHICH SHOULD BE HEARD BY A SPEC IAL BENCH CONSISTING OF THREE OR MORE MEMBERS. THE MAIN CONSIDERATION FOR T HE DIVISION BENCH IN COMING TO THAT VIEW WAS THAT THE ISSUE IN QUESTION WAS COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF ANSAL PROP ERTIES AND INDUSTRIES LTD. 301 ITR (AT) 285, WHICH WAS ALSO A PARTY TO THE A GREEMENT IN WHICH THE IDENTICAL PAYMENTS WERE MADE BY DCM. THE DIVISION BENCH, AFTER HAVING FOUND THAT IN THE AFOREMENTIONED CASE OF ANSALS THE ITAT HAS NOT CONSIDERED THE RATIO OF DECISION OF HONBLE SUPREME COURT IN T HE CASE OF OBERAI HOTELS PVT. LTD. 236 ITR 903 (SC) AS ALSO THE DECISION OF THE APEX COURT IN THE CASE OF P.H. DIVECHA 48 ITR 222 (SC), OPINED THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF ANSAL PROPERTIES & INDUSTRIES LTD (SUPRA), WITHOUT CONSIDERING THE AFOREMENTIONED CASES OF THE SUPREME COURT, HAS RENDERED PER IN CURIUM AND THE DECISIONS OF THE SUPREME COUR T, CITED SUPRA, HAVE A SUBSTANTIAL BEARING UPON THE APPEALS OF THE ASSESSE E. A SUGGESTION WAS MADE TO THE PRESIDENT, ITAT, FOR CONSTITUTION OF A SPECI AL BENCH WITH THE FOLLOWING QUESTIONS: (I) WHETHER THE RECEIPT OF RS. 2.85 CRORES BY THE ASSESSEE FROM DCM FOR THE TERMINATION OF THE AGREEMENT TO BU ILD ON THE LAND BELONGING TO DCM ALONG WITH RIGHT TO SE LL ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 3 SUCH PORTIONS OF THE SUPER BUILT AREA IN THE CONSTR UCTION FALLING TO THE SHARE OF THE ASSESSEE IS A REVENUE RECEIPT OR A CAPITAL RECEIPT? (II) WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A SUM OF RS. 2.85 CRORES HAS ACCRUED TO THE ASSESSEE AS INCOME OF THE YEAR UNDER CONSIDERATION OR IT WAS TO BE TAXED IN THE YEAR THE SAID AMOUNT IS RECEIVED AS HE LD BY THE CIT(APPEALS).? 3. THE HONBLE PRESIDENT AGREEING WITH THE ABOVE SU GGESTION OF THE DIVISION BENCH, CONSTITUTED THE SPECIAL BENCH TO CO NSIDER THE ABOVE QUESTIONS AND TO DISPOSE OF THESE APPEALS IN ACCORD ANCE WITH LAW. 4. THE ASSESSEE IN THIS CASE IS A FIRM ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT THE ASSESSEE RETURNED ITS INCOME ON THE BASIS OF PROJECT COMPLETION METHOD. FOR A.Y. 2001-02 IT RETURNED A TOTAL INCOME OF RS. 350/-. THE CASE WAS SELECTED FOR SCRUTINY AN D CERTAIN QUESTIONS WERE RAISED BY THE ASSESSING OFFICER. IN THE COURSE OF I TS SAID BUSINESS OF CONSTRUCTION WORK, THE ASSESSEE ENTERED INTO A CO LLABORATION AGREEMENT DATED 17-7-1986 WITH M/S DCM LTD. (HEREINAFTER REFE RRED TO DCM) FOR THE DEVELOPMENT AND CONSTRUCTION ON THE LAND SITUATED AT BARA HINDU RAO AND KISHAN GANJ, NEW ROHTAK ROAD, OWNED BY DCM. THE DC M, A LIMITED COMPANY, WAS IN POSSESSION OF 66.53 ACRES OF LAND, WHICH WAS PARTLY LEASE- HOLD AND PARTLY FREEHOLD, SITUATED IN THE HEART OF DELHI. DCM WAS ADVISED BY THE DELHI ADMINISTRATION VIDE THEIR LETTER DATED 1- 6-1981 THAT THE AFORESAID ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 4 DELHI CLOTH MILLS UNDERTAKING IS IN A NON-CONFIRMIN G AREA AND THE DCM WAS, THEREFORE, REQUIRED TO PUT THE AFORESAID LAND TO SUCH USE AS IS PERMISSIBLE UNDER THE PROVISIONS OF DELHI MASTER PL AN. IN TERMS OF THE AGREEMENT DATED 17-7-1986 THE DCM APPOINTED THE ASS ESSEE M/S KAILASH NATH & ASSOCIATES (KNA IN SHORT), AS THE DEVELOPE RS, BUILDERS AND CONTRACTORS TO UNDERTAKE AND EXECUTE THE DEVELOPMEN T WITHIN THE FRAMEWORK OF THE APPLICABLE RULES AND REGULATIONS COVERING THE SAID AREA 66.53 ACRES OF LAND FOR THE LOCATION THEREON OF TH E FOLLOWING: (A) FLATTED FACTORIES OVER AN AREA OF ABOUT 23.14 A CRES; (B) RESIDENTIAL FLATS UNDER A MULTI STOREYED GROUP HOUSING SCHEME OVER AN AREA OF 26.84 ACRES. (C) SHOPPING COMPLEX ON AN AREA OF 0.70 ACRES. (D) HEALTH CENTER ON AN AREA OF 0.10 ACRE. (E) ZONAL PARKS ON AN AREA OF 6.0 ACRES (F) ZONAL ROADS OVER AN AREA OF 3 ACRES. THE PLANS PREPARED BY KNA SHALL ENSURE THE MAXIMIZA TION OF SALEABLE AREAS. 5. THE AFORESAID AGREEMENT PROVIDED FOR SPECIAL DI VISION BETWEEN KNA AND DCM IN CERTAIN PROPORTIONS OF THE TOTAL BUILT U P AREA. ON ITS PART KNA WAS TO DEPOSIT WITH DCM A SUM OF RS. 8 CRORES FREE OF INTEREST AS SECURITY DEPOSIT FOR THE PERFORMANCE OF THE CONDITIONS OF TH E SAID AGREEMENT. ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 5 ACCORDINGLY, CHEQUES TO THE EXTENT OF RS. 4 CRORES WERE TO BE PAID BEFORE 31 ST JANUARY 1987. THE BALANCE RS. 4 CRORES WAS REQUIRE D TO BE PAID BY KNA TO DCM WITHIN 7 DAYS OF THE KNA OBTAINING THE APPRO VAL OF THE PLANS FROM THE MUNICIPAL AUTHORITIES. 6. ACCORDING TO THE ASSESSEE, THE ASSESSEE HAD ENTE RED INTO THE ABOVE AGREEMENT BEYOND ITS CAPACITY TO EXECUTE THE SAME W ITHIN THE MEANS AVAILABLE WITH IT AND THEREFORE DCM AND KNA MUTUALL Y AGREED VIDE SECOND AGREEMENT DATED 24-11-1988 TO APPOINT M/S ANSAL PRO PERTIES AND INDUSTRIAL LTD. (ANSALS IN SHORT) AS ASSOCIATE DEVELOPERS TO UNDERTAKE THE DEVELOPMENT AND CONSTRUCTION OF 50% OF THE PROJECT. 7. ON 24-6-1998 THE DCM CANCELLED AND TERMINATED TH E COLLABORATION AGREEMENT. THE SAID TERMINATION BY DCM WAS CHALLEN GED BY THE ASSESSEE IN THE DELHI HIGH COURT AND SINCE IT WAS FELT THAT THE LEGAL PROCEEDINGS WOULD TAKE A LONG TIME, THE ASSESSEE ENTERED INTO A SETT LEMENT AGREEMENT WITH DCM OUT OF COURT. THE AGREEMENT WAS IN A SHAPE OF A N ARBITRAL AWARD GIVEN BY THE CONCILIATOR UNDER THE ARBITRATION AND CONCIL IATION ACT OF 1996. AS PER TERMS OF THIS AGREEMENT THE ASSESSEE FIRM ABANDONED ITS RIGHTS TO CARRY ON BUSINESS UNDER THE COLLABORATION AGREEMENT DATED 24 -11-1988 AND DCM AGREED TO PAY COMPENSATION. THE COMPENSATION, AS AG REED, IS TO BE PAYABLE TO THE ASSESSEE FOR NOT COMPETING WITH THE DCM IN A NY SIMILAR BUSINESS IN ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 6 THE VICINITY OF THE ONGOING PROJECT FOR A PERIOD OF THREE YEARS. THAT IN ADDITION TO COMPENSATION PAYABLE, THE DCM WAS OBLIG ED TO REFUND TO THE ASSESSEE SECURITY DEPOSIT OF RS. 3.90 CRORES STATED TO HAVE BEEN PAID BY THE ASSESSEE TO THE DCM IN TERMS OF COLLABORATION AGREE MENT. IT WAS AGREED THAT THE PAYMENT WOULD BE FIRST TOWARDS THE REFUND OF S ECURITY DEPOSIT. A TOTAL SUM OF RS. 6.75 CRORES WAS AGREED TO BE PAYABLE IN TERMS OF THE SAID AGREEMENT OF WHICH RS. 3.90 CRORES WAS TO REPRESENT THE REFUND OF THEIR SECURITY DEPOSIT WITH THE DCM AND RS. 2.85 CRORES W AS AGREED TO BE COMPENSATION FOR TERMINATION OF THEIR AGREEMENT AND THEIR RIGHTS TO DEVELOP AND COLLABORATE WITH THE DCM. IT WAS CLAIMED THAT T HIS SUM OF RS. 2.85 CRORES WHICH REPRESENTED THE COMPENSATION, WAS A CA PITAL RECEIPT AND WAS NOT TAXABLE. IT WAS ALSO STATED THAT ALTHOUGH THE ASSESSEE HAD NOT RECEIVED BUT AS AND WHEN IT WAS RECEIVED THE SAID SUM SHOUL D BE HELD AS NOT TAXABLE AS INCOME. THE CLAIM OF THE ASSESSEE WAS THAT THE SAID SUM OF RS. 2.85 CRORES PAYABLE BY DCM WAS FOR THE ABANDONMENT/ WIT HDRAWAL BY THE ASSESSEE FROM THE COLLABORATION PROJECT AND ALSO FO R THE UNDERTAKING GIVEN BY THE ASSESSEE FOR NOT CARRYING ON SIMILAR BUSINESS O R PARTICIPATE IN A SIMILAR PROJECT IN THE VICINITY OF THE SAID ONGOING PROJECT FOR A PERIOD OF THREE YEARS. THE ASSESSING OFFICER DID NOT ACCEPT THESE CONTENTI ONS. ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 7 8. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE TOOK ONE OF THE PROJECTS FROM DCM LTD. AND THIS PROJECT, DUE TO WHA TEVER REASONS CAME TO AN END VIDE SETTLEMENT AGREEMENT DATED 30-10-2000. THE ACCOUNTS ARE TO BE FINALIZED DURING THE YEAR THE PROJECT IS COMPLETE. THE SETTLEMENT AGREEMENT WAS ENTERED TO END ALL THE DISPUTES BETWEEN THE ASS ESSEE AND DCM LTD. IT WAS FINAL AND THERE WAS NO DISPUTE AS FAR AS THE SE TTLEMENT AGREEMENT WAS CONCERNED. ACCORDING TO HIM, BY THE SETTLEMENT AGRE EMENT (A) THE DCM LTD. HAS TAKEN OVER ALL THE LIABILITIES AND OBLIGATIONS AS ALSO INDEMNIFY THE ASSESSEE AGAINST ALL PROCEEDIN GS AND CLAIMS ETC. RELATED TO THE PROJECT. (B) DCM AGREED TO PAY RS. 6.75 CRORES INCLUSIVE OF SEC URITY DEPOSIT OF RS. 3.90 CRORES AND THE POTENTIAL INCOME, WHICH COU LD HAVE ARISEN TO THE ASSESSEE FROM THE PROJECT. (C) DCM HAS SUBMITTED AN AFFIDAVIT BEFORE THE HIGH COU RT OF DELHI, THE UNDERTAKING TO PAY THE AMOUNT ON THE STIPULATED DAT ES. ALSO PROVIDE INTEREST ON DELAYED PAYMENTS. PROVISION OF INTEREST IS ALSO MADE IF PAYMENTS ARE DELAYED. (D) NECESSARY PROVISIONS HAVE BEEN MADE TO PROTECT THE INTEREST OF THE ASSESSEE. (E) THE ASSESSEES RIGHT TO RECEIVE AN AMOUNT OF RS. 6. 75 CRORES IS CREATED LEGALLY. 9. THE RIGHT TO RECEIVE AMOUNT HAS BEEN CREATED VID E SETTLEMENT AGREEMENT DATED 30-10-2000 AND SINCE THE ASSESSEE I S FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE INCOME AND EXPENDITURE ARE TO BE BOOKED ON ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 8 ACCRUAL BASIS. ACCORDING TO HIM, ALL THE TERMS LEAV E NO SCOPE FOR NOT ASSESSING THE INCOME OF RS. 6.75 CRORES IN THE YEAR OF ACCRUAL. HE CITED VARIOUS DECISIONS ON PAGES 6 & 7 OF HIS ORDER TO DR AW SUPPORT THEREFROM AND TO BRING TO TAX THE AMOUNT ACCRUING AS A RESULT OF THE SAID SETTLEMENT AGREEMENT. SINCE THE AMOUNT WAS INCLUSIVE OF SECURI TY DEPOSIT OF RS. 3.9 CRORES THE REMAINING AMOUNT OF RS. 2.85 CRORES IS TO BE ASSESSED AS INCOME OF THE ASSESSEE FROM THE SAID DCM PROJECT. THE TOTA L INCOME OF RS. 350/- RETURNED BY THE ASSESSEE WAS ASSESSED AT AN INCOME OF RS. 3,18,68,487/-. AFTER INCLUDING THEREIN THE DISPUTED SUM OF RS. 2. 85 CRORES AS A REVENUE RECEIPT, AS STATED EARLIER 10. FEELING AGGRIEVED, THE ASSESSEE CHALLENGED THE SE FINDINGS OF THE ASSESSING OFFICER BEFORE THE CIT(APPEALS). THE CIT( A) AGREED WITH THE ASSESSING OFFICER THAT THE CLAUSE IMPOSING RESTRI CTION UPON THE ASSESSEE THAT HE WOULD NOT CARRY OUT BUSINESS IN THE VICINIT Y OF THE DCM TECHNO PLAZA, WILL BE VERY DIFFICULT TO IMPLEMENT AND THE FACT WILL REMAIN THAT IT WILL NOT BE POSSIBLE TO STOP ALL THESE PEOPLE FROM OPER ATING FROM THEIR DDA FLATS, A HOBBY TO WHICH THEY HAVE GOT USED FROM A VERY LON G TIME. IT MAY ALSO BE MENTIONED THAT THE ASSESSEE FIRM WAS ONLY DEBARRED FROM ANY PROJECT WHICH IT WOULD HAVE FOUND DIFFICULT TO CARRY OUT IN THE S AME AREA ANY WAY BECAUSE MOST OF THE LAND IN JHANDEWALAN WAS OWNED BY NEWS PAPER SOCIETIES AND ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 9 THERE WAS NO REASON FOR THE KAILASH PEOPLE TO TA KE A PROJECT IN THAT AREA ITSELF. FURTHER THE ASSESSEE FIRM COULD HAVE EASILY TAKEN A PROJECT IF NOT EXACTLY AT THE SAME PLACE IN SOME NEARBY AREA IF TH EY FELT THAT THE AREA WAS VERY GOOD AND CONDUCIVE FOR CARRY ON OF BUSINESS. I N THE LIGHT OF THESE DISCUSSIONS, IT WOULD BE DIFFICULT TO ACCEPT THE IM PUGNED RECEIPT AS CAPITAL IN NATURE. ACCORDING TO HIM, THIS WAS A REVENUE RECEI PT. THE CIT(A) FURTHER OPINED THAT THE ASSESSEE FIRM HAD NOT LOST THE RI GHT TO REMAIN IN THIS BUSINESS OR THEY HAD NOT LOST THE RIGHT TO CARRY O N BUSINESS IN OTHER PARTS OF THE COUNTRY OR IN THIS TOWN ALSO. THE ONLY STIPULAT ION WAS THAT THEY WOULD NOT CARRY OUT ANY BUSINESS NEAR THE ONGOING PROJECT OF THE DCM IN WHICH THEY WERE EARLIER PARTNER WITHOUT THE PERMISSION OF THE DCM PEOPLE AND THE ASSESSING OFFICER HAS CLEARLY POINTED OUT THAT THEY WERE CARRYING ON VARIOUS PROJECTS ALL OVER INDIA FROM WHERE INCOME WAS BEING DERIVED. THE DCM PROJECT WAS NOT THE ONLY PROJECT WHICH THE ASSESSEE FIRM WAS DOING, IT WAS CARRYING ON MANY OTHER PROJECTS. 11. THE LEARNED CIT(APPEALS), AFTER HAVING HELD THE RECEIPT IN QUESTION AS REVENUE RECEIPTS ADDRESSED HIMSELF TO THE NEXT GR OUND OF APPEAL RELATING TO THE YEAR OF TAXABILITY. ACCORDING TO HIM, THE ASSES SING OFFICER HAS HELD THAT THE INCOME ACCRUED TO THE ASSESSEE IN THIS YEAR BEC AUSE THEY HAD SIGNED AN ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 10 AGREEMENT WITH THE DCM IN THE CURRENT YEAR AND RIG HT TO RECEIVE THE INCOME ACCRUED IN THIS YEAR. 12. ACCORDING TO THE ASSESSEE, THE INCOME, IF ANY, ACCRUED IS ON THE COMPLETION AND CONCLUSION OF THE PROJECT AND NOT IN THIS YEAR AS THERE ARE CLAIMS AND COUNTER CLAIMS, ARISING OUT OF THE AGREE MENT. . ACCORDING TO THE CIT(A), IN TERMS OF THE SETTLEMENT AGREEMENT, DCM WAS FIRST SUPPOSED TO REFUND THE SECURITY DEPOSIT OF RS. 3.9 CRORES AND T HE BALANCE RS. 2.85 CRORES WAS TO BE PAID TO THEM SUBSEQUENTLY AS COMPENSATION . HOWEVER, THE DCM AFTER PAYING RS. 2.3 CRORES, RELYING ON THE DUE DIL IGENCE CLAUSE HAS STOPPED ALL PAYMENTS TO THE ASSESSEE, EVEN THOUGH IT WAS FO UR YEARS FROM THE DATE OF THE AGREEMENT AND THEY ARE YET TO RECEIVE ANY MONE Y FROM THE DCM PROJECT. THEY ARE NOT EVEN CERTAIN WHETHER AT THE END OF THE DAY THEY WILL RECEIVE ANY MONEY FROM THE DCM BECAUSE ACCORDING TO THEM, THE D CM HAS ALREADY STARTED PUTTING IN COUNTER CLAIMS OF PAYMENTS AGAIN ST THE ASSESSEE. HENCE, ACCORDING TO THE LEARNED CIT(A), TREATING THE SAID INCOME OF RS. 2.85 CRORES AS HAVING BEEN ACCRUED TO THE ASSESSEE WAS NOT ACCE PTED AND HE DIRECTED THE SAME TO BE TAXED IN THE YEAR IN WHICH IT WAS RECEIV ED. THEREFORE, ON THIS GROUND THE REVENUE IS EQUALLY AGGRIEVED BY THE ORD ER OF THE CIT(A) AND HAS QUESTIONED HIS DIRECTION IN ITS APPEAL. ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 11 13. THE MAIN GROUND IN THE ASSESSEES APPEAL IS AS TO THE TAXABILITY OF RS. 2.85 CRORES RECEIVED IN TERMS OF THE AGREEMENT DATE D 13-10-2000 WITH DCM FOR CANCELLATION OF THE COLLABORATION AGREEMENT. 14. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDE R: 1. THE LD. CIT(A) ERRED IN LAW ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING ADDITION OF R S. 2.85 CRORE HOLDING THAT THE RECEIPTS ACCRUED AS PER THE SETTLEMENT AGREEMENT SHALL BE CHARGED TO TAX IN THE YEAR OF RECEIPT AND NOT ON DUE BASIS WITHOUT APPRECIATIN G THE FACTS THAT :- (A) THE ASSESSEE HAS BEEN REGULARLY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. (B) THE AO HAD CHARGED THE RECEIPT ON DUE BASIS RELYING ON A NUMBER OF DECISIONS OF THE VARIOUS COURTS INCLUDING THE APEX COURT AS MENTIONED IN THE ASSESSMENT ORDER ITSELF. 2. THE LD. CIT(A) FURTHER ERRED IN DELETING THE ABO VE SAID ADDITION WITHOUT DISCUSSING AS TO HOW THE CASE LAWS RELIED UPON BY THE AO WERE NOT APPLICABLE IN THE CASE OF T HE ASSESSEE. 3. THE LD. CIT(A) FURTHER ERRED IN HOLDING THAT REC EIPTS OF COMPENSATION ON ACCOUNT OF TERMINATION OF CONTACT A RE TO BE CHARGED TO TAX ON RECEIPT BASIS WITHOUT APPRECIA TING THE FACT THAT THE AO HAS RIGHTLY CHARGED THE SAID RECEIPTS ON DUE/ACCRUAL BASIS AS PER SPECIFIC PROVISION OF S ECTION 28(II) READ WITH SECTION 5 OF THE I.T. ACT. 4. THE LD. CIT(A) WHILE DELETING ADDITION FURTHER E RRED ON OBSERVING THAT THE SETTLEMENT AGREEMENT ITSELF IS I N DOLE DRUM AS M/S DCM HAS STOPPED PAYMENT TO THE ASSESSEE INVOKING THE DUE DILIGENCE CLAUSE OF THE SETTLEME NT AGREEMENT, WITHOUT APPRECIATING THE FACT THAT THE ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 12 SETTLEMENT AGREEMENT HAS PROVIDED ENOUGH SECURITY IN FORM OF LIEN RIGHT OVER CERTAIN PORTION OF THE IMMO VABLE PROPERTY OF M/S DCM, IN CASE THE LATER DOES NOT ABI DE BY THE TERMS OF SETTLEMENT. HENCE THE AMOUNT OF COMPENSATION IS TO BE TAXED ON DUE BASIS. 15. AT THIS STAGE, DOUBTS AROSE ON SEVERAL FACTUAL ASPECTS OF THE TRANSACTIONS AND QUESTIONS WERE ASKED FROM THE BEN CH TO BOTH THE PARTIES AS TO THE EXACT ACCOUNTING TREATMENT GIVEN IN RESPECT OF THE PROJECT THAT WAS THE SUBJECT MATTER OF EXECUTION TILL IT WAS TERMINATED. MORE PRECISELY, THE QUESTIONS WERE PUT HOW THE ASSESSEE HAS ACCOUNTED F OR THE EXPENDITURE ON THE CONSTRUCTION PROJECT AND THE RECEIPT IN RELATIO N TO THE BOOKING OF THE CONSTRUCTION THAT WAS THE SUBJECT MATTER OF EXECUTI ON. HOW THESE INCOMPLETE PROJECTS GOT TRANSFERRED TO DCM AND WHETHER THERE I S ANY SEPARATE CONSIDERATION FOR THE SETTLEMENT OF THE INCOMPLETE PROJECTS AND THIRD PARTYS RIGHT ARISING AS A RESULT OF THE TERMINATION OF THE CONTRACT. 16. THE LEARNED DR AT THIS STAGE FILED COPIES OF TH E AUDITED ACCOUNTS, WHICH, ACCORDING TO HIM, CLEARLY SHOWED THAT THESE PAYMENTS WERE IN RESPECT OF THE PROJECT THAT WAS PARTIALLY EXECUTED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE EN TIRE ACCOUNTS OF THE INCOMPLETE PROJECTS ARE STILL OPEN AND ARE NOT CLO SED DUE TO DIFFERENT TYPES OF DISPUTES THAT ARE RAISED BUT IT IS FAIRLY AGREE D THAT THE ASSESSEE IS REQUIRED ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 13 TO TRANSFER ALL THE INCOMPLETE WORK IN FAVOUR OF THE DCM AND THE DCM IS ALSO BOUND TO GIVE CREDIT OF THE RECEIPTS IN RESPEC T F THE PROJECTS WHICH WERE BOOKED BY THE ASSESSEE FIRM. THE BENCH EXAMINED THE ACCOUNTS AND TRIED TO APPRECIATE SOME MORE DETAILS. IT CAME OUT THAT THE ACCOUNTS SHOWED THAT THE ASSESSEE FIRM HAD INCURRED THE PROJECT EXPENSES TO THE EXTENT OF RS. 6,98,47,768/- AND HAS ALSO RECEIVED FROM THE PROSP ECTIVE BUYERS THE BOOKING AMOUNT TO THE EXTENT OF 16,48,58,688/- AND LARGER QUESTIONS WERE RAISED AS TO THE TAXABILITY OF NET RECEIPTS FROM THE PROJECTS AFTER THE ADJUSTMENT OF LOSS INCURRED ON SUCH PROJECT IF WE REACH A CONCLUSION T HAT THE PROJECT IN QUESTION GOT DETERMINED AS A RESULT OF SETTLEMENT AGREEMENT DATED 13-10-2000. 17. WE WILL EXAMINE THE SETTLEMENT AGREEMENT IN THE LIGHT OF THESE FINANCIAL FIGURES. IT MAY BE MENTIONED THAT THE AS SESSEE FIRM IS A PARTY TO THE APPLICATION FOR RECORDING SETTLEMENT AGREEMENT IN THE FORM OF ARBITRAL AWARD IN OMP NO. 176 OF 1998 BEFORE THE HIGH COURT OF DEL HI. AS IS CLEAR FROM THE SAID APPLICATION, THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND IN PURSUANCE OF THE EARLIER AGREEMENT HAS EXECUTED CERTAIN WORK AND HAS ALSO ACCEPTED CERTAIN THIRD PARTY BOOKINGS AND THE FLAT BUYERS A SSOCIATION IN THE NAME OF DCM TECHNOPLAZA & GREEN ACRES FLAT BUYERS ASS OCIATION , HAVE ALSO FILED APPLICATION BEING ITA NO. 756 OF 1999 IN OMP NO. 198/98, PRAYING, ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 14 INTER ALIA, FOR ALLOWING THE ASSOCIATION TO PARTICI PATE IN THE PROCEEDINGS BEFORE THE COURT AND FOR THE DIRECTION THAT RESPOND ENT NO. 1, NAMELY, DCM LTD., BE DIRECTED TO HONOUR THE BOOKINGS MADE BY T HE PETITIONER ON THE SAME TERMS AND CONDITIONS, EVEN IF THERE WAS CHANGE IN T HE BUILDERS/ CONTRACTORS WHO WERE ENGAGED FOR COMPLETION OF THE PROJECT. TH E DISPUTES WERE PENDING FOR A LONG TIME AND THE ARBITRATION PROCEED INGS WERE INITIATED BY THE ASSESSEE PETITIONER ONLY TO SAVE THE TIME AND ALSO IN THE LARGER INTEREST OF THE LARGE NUMBER OF PERSONS WHO HAD MADE PROVISIONAL B OOKINGS BY ENTERING INTO AGREEMENT WITH RESPECT TO THE PROPOSED DEVELO PMENT WORK IN THE AREA AN THE ASSESSEE AS WELL AS ANSALS AND DCM HAD DE CIDED TO SETTLE THEIR INTER-SE DISPUTES THROUGH CONCILIATION UNDER CHAPTE R III OF THE ARBITRATION & CONCILIATION ACT, 1996 AND APPOINTED WITH MUTUAL CO NSENT SHRI AJAY SRIVASTAVA AS A CONCILIATOR AND A SETTLEMENT AGREEM ENT DATED 30-10-2000 WHICH WAS AUTHENTICATED BY THE CONCILIATOR HAS BEE N SIGNED BY ALL THE PARTIES AND MUTUALLY THE SAID SETTLEMENT AGREEMENT WAS TO BE HELD AS FINAL AND BINDING ON ALL PARTIES AND THE SAID SETTLEMENT AGREEMENT IS TO BE TREATED AS ARBITRAL AWARD ON AGREED TERMS ON THE SUBSTANCE OF DISPUTES BETWEEN THE PARTIES. IN TERMS OF THE SAID SETTLEMENT AGREEMENT THE ASSESSEE PETITIONER AND THE DCM (RESPONDENT) HAVE AGREED, INTER ALIA, AS UN DER: ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 15 (I) KNA AND ANSALS SHALL ABANDON ALL THEIR RIGHTS, CL AIMS AND INTERESTS WHATSOEVER THERE MIGHT HAVE BEEN UNDER TH E AFORESAID AGREEMENTS IN RELATION TO THE PROJECT OF DCM AT BARA HINDU RAO/ KISHANGANJ, DELHI; (II) DCM SHALL HEREAFTER TAKE OVER FROM THE KNA AND AN SALS THE CONSTRUCTION OF FLATTED FACTORIES AND RESIDENTIAL G ROUP HOUSING COMPLEX AT BARA HINDU RAO/ KISHAN GANJ, DELHI. (III) DCM SHALL SATISFY, PAY AND FULFILL ALL LIABILITIES , DUTIES, CONTRACTS AND ENGAGEMENTS OF THE KNA AND ANSALS IN RELATION TO THEIR RESPECTIVE PROSPECTIVE BUYERS AND UNDER THE PROVISI ONAL BOOKINGS MADE WITH THEM. THE PARTIES STATE THAT THIS IS IN C ONSONANCE WITH THE UNDERTAKING GIVEN BY DCM BEFORE THIS HONBLE C OURT AND RECORDED IN ITS ORDER DATED AUGUST 21, 1998 TO THE EFFECT THAT IT WILL HONOUR ALL THE COMMITMENTS MADE BY THE KNA AND ANS ALS TO THEIR RESPECTIVE PROSPECTIVE BUYERS AND TO WHICH DC M CONTINUES TO BE COMMITTED. 18. ALL THESE CLAUSES IN THE SETTLEMENT AGREEMENT P OINT OUT TO ONE THING THAT THE INCOMPLETE PROJECT IS THE SUBJECT MATTER O F ABANDONMENT OR TRANSFER IN FAVOUR OF THE DCM. THE ASSESSEE HAS RECEIVED RS. 16,48,58,688/- IN RESPECT OF THE PROJECT FROM THE PERSONS WHO BOOKED FLATS IN THE PROJECT. HE HAS TRANSFERRED THESE LIABILITIES TO DCM. IT HAS SP ENT RS. 6,98,47,768/- ON THE PROJECT AND THE SAME WAS TRANSFERRED TO DCM CLEARLY MEANING THEREBY THAT IF ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 16 THE PROJECT IS TAKEN AS COMPLETE ON SUCH TERMINATIO N, THE ASSESSEE HAS CLEAR SURPLUS OF OVER RS. 9.50 CRORES. THE ASSESSING OFFI CER HAS NOT EVEN EXAMINED THE TAX IMPLICATIONS OF THESE ISSUES UPON THE SAID SETTLEMENT, BUT CONFINED HIMSELF AS TO THE TAXABILITY IN RESPECT OF RS. 2.85 CRORES AS PART OF REVENUE RECEIPT. WHEN THIS WAS PUT TO THE ASSESSEES COUNSE L, HE JUST CONCEDED ALL ISSUES IN FAVOUR OF THE REVENUE . NOT ONLY HE CONCE DED THE TAXABILITY THEREOF, BUT HAS ALSO CONCEDED THE ASSESSABILITY OF THE SAID SUM IN THE YEAR IN QUESTION. TO THIS EXTENT HE CONCEDES TO THE DEPARTM ENTAL APPEAL ALSO. WE MUST APPRECIATE THAT WHEREVER THE PROJECT COMPLETI ON METHOD, WHICH THE ASSESSEE IS STATED TO BE FOLLOWING, DEPENDS UPON TH E ACTUAL FACTUAL POSITION OF THE CASE. HERE IN THIS CASE THE AGREEMENT ITSELF GO T TERMINATED. THERE CAN BE NO OTHER COMPLETION IN THIS CASE EXCEPT THE COMPLE TION AS A RESULT OF TERMINATION OF THE AGREEMENT. TO THIS EXTENT THE AS SESSING OFFICER COULD HAVE BROUGHT ALL SUMS TO TAX. EVEN ON THE REASONING THAT THE AMOUNTS BECAME ACCRUED AS A RESULT OF PROJECT COMPLETION METHOD IT SELF. ANY HOW WE CAN NOT GO INTO THIS ISSUE BECAUSE IT WAS NOT THE CASE OF T HE ASSESSING OFFICER. THE ASSESSEE IS FAIRLY CONSCIOUS OF THESE IMPLICATIONS AND HAS WISELY CONCEDED THE APPEAL IN FAVOUR OF THE REVENUE . WE, THEREFORE , WITHOUT GOING TO THE MERITS OF THE MATTER, CONFIRM THE ORDER OF THE ASS ESSING OFFICER. WE ARE DOING THIS EXERCISE JUST TO PROTECT THE INTEREST OF THE REVENUE TO THE EXTENT THE ITA 5594/D/04 M/S KAILASH NATH & ASSOCIATES 17 ASSESSING OFFICER HAS MADE THE COMPUTATION OF INCOM E, AS THE TRIBUNAL HAS NO POWER TO MAKE ENHANCEMENT, WE RESTRICT OURSELVES TO THIS. WITH THESE OBSERVATIONS THE APPEAL OF THE ASSESSEE IS TREATED AS DISMISSED AND THE REVENUES APPEAL IS TREATED AS ALLOWED. SD/- (G.E. VEERABHADRAPPA ) VICE PRESIDENT SD/- ( R.P.TOLANI ) JUDICIAL MEMBER SD/- (I.P. BANSAL ) JUDICIAL MEMBER DATED: 16 TH OCT. 2009. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) DR