PRAKASH CHANDRAKANT SHETH, MUMBAI V. ASST CIT CEN CIR 9, MUMBAI

ITA 6197/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4314 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RADHA K NARANG
• Keywords: Business income; Commercial expediency

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 6197 / MUM/ 2013 ( / ASSESSMENT YEA R : 2010 - 2011 ) PRAKASH CHA NDRAKANT SHETH, 52/C, VASUNDHARA APARTMENT, S V ROAD, BORIVALI (W), MUMBAI - 400092 / VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 9 MUMBAI. ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAIPS3060 N / APPELLANT BY SHRI SATISH R MODY / RESPONDENT BY MS.RADHA K NARANG / DATE OF HEARING : 28 .12.2015 / DATE OF PRONOUNCEMENT: 1. 1.2016 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 02 - 09 - 2013 PASSED BY LD CIT(A) - 37, MUMBAI FOR ASSESSMENT YEAR 2010 - 11 ON THE FOLLOWING ISSUES: - ( A ) DISALLOWANCE OF RS.44.00 LAKHS CLAIMED BY THE ASSESSEE. ( B ) DI SALLOWANCE OF INTEREST EXPENDITURE OF RS.6.67 LAKHS CLAIMED. 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF RS.44.00 LAKHS CLAIMED BY THE ASSESSEE AGAINST THE SALE PROCEEDS OF RS.70.00 LAKHS CREDITED TO THE PROFIT AND LOSS ACCOUNT WITH THE NARRATION SALE OF MAVJI MANSION FLAT. THE FACTS RELATING THERETO ARE STATED IN BRIEF. THE ASSESSEE IS IN REAL ESTATE BUSINESS FOR SEVERAL YEARS. ITA NO. 6197/ MUM/ 2013 2 IT APPEARS THAT HE HAD UNDERTAKEN TO DEVELOP A PIECE OF LAND LOCATED AT MAHIM WITH ITS OWNERS. SUBSEQUENTLY ANOTHER BUILDER NAMED M/S JANKI BUILDERS & DEVELOPERS ALSO ENTERED INTO AN AGREEMENT WITH THE OWNERS TO DEVELOP THE VERY SAME PLOT. SINCE THE ASSESSEE DISPUTED THEIR AGREEMENT, M/S JANKI BUILDERS & DEVELOPERS AGREED TO GIVE ONE FLAT FREE OF COST TO THE ASSESSEE IN ORDER TO SETTLE HIS RIGHTS OVER THE PLOT. IT WAS SO AGREED THROUGH AN UNREGISTERED MOU DATED 16.03.2005 AND IT WAS PROVIDED THAT THE PROJECT WOULD BE COMPLETED BEFORE 31.3.2007. HOWEVER, IT APPEARS THAT THE PROJECT COULD NOT BE COMMENCED AND HENCE ANOTHER AGREEMENT DATED 14.03.2007 WAS ENTERED INTO BETWEEN THE ASSESSEE AND M/S JANKI BUILDERS & DEVELOPERS, WHEREBY THE PROJECT WAS REQUIRED TO BE COMPLETED BY 31.3.2010. ON THE BASIS OF THE ABOVE SAID AGREEMENT, THE ASSESSEE VALUED HIS RIGHT OVER THE FLAT AT RS.22.00 LAKHS AND OFFERED THE SAME AS HIS INCOME FROM BUSINESS IN AY 2007 - 08. 3. SUBSEQUENTLY ANOTHER SUPPLEMENTARY MOU DATED 14.04.2007 WAS ENTERED INTO, AS PER WHICH THE ASSESSEE WAS ALLOTTED ONE MORE FLAT THAT IS GOING TO BE CONSTRUCTED. THE ASSESSEE VALUED THE SAID FLAT ALSO AT RS.22.00 LAKHS AND OFFERED THE SAME AS HIS INCOME FROM BUSINESS IN AY 2008 - 09. BOTH THE FLATS AGGREGATING TO RS.44.00 LAKHS WAS SHOWN AS HIS STOCK IN TRADE IN THE BOOKS OF A CCOUNT. 4. SINCE THE PROJECT DID NOT TAKE PLACE, THE ASSESSEE ULTIMATELY SETTLED THE MATTER WITH THE BUILDER CITED ABOVE, AS PER WHICH THE ASSESSEE RECEIVED A SUM OF RS.70.00 LAKHS IN SETTLEMENT OF ALL HIS RIGHTS OVER THE PLOT. THE ASSESSEE OFFERED THE SAME AS HIS INCOME IN AY 2010 - 11 AND CLAIMED THE AMOUNT OF RS.44.00 LAKHS (RS.22.00 LAKHS PLUS RS.22.00 LAKHS OFFERED IN AY 2007 - 08 AND 2008 - 09 RESPECTIVELY). THE AO TOOK THE VIEW THAT THE INCOME OF RS.70.00 LAKHS HAS ACCRUED TO THE ASSESSEE ONLY IN AY ITA NO. 6197/ MUM/ 2013 3 2010 - 11 AND ACCORDINGLY REJECTED THE CLAIM FOR DEDUCTION OF RS.44.00 LAKHS. THE LD CIT(A) ALSO AFFIRMED THE VIEW TAKEN BY THE AO, BUT DIRECTED THE AO TO EXCLUDE THE AMOUNT OF RS.44.00 LAKHS OFFERED IN THE EARLIER YEARS FROM THE TOTAL INCOME OF THE RESPECT IVE ASSESSMENT YEARS, AFTER ASCERTAINING CORRECT FACTS. 5. WE NOTICE THAT THE TAX AUTHORITIES HAVE TAKEN THE DECISION AGAINST THE ASSESSEE ON THE GROUND THAT THE FLATS WERE NOT ULTIMATELY CONSTRUCTED AND HENCE THE INCOME OF RS.70.00 LAKHS HAS ACCRUED TO THE ASSESSEE IN AY 2010 - 11 ONLY. BEFORE US, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS HELD SOME RIGHT OVER THE PLOT THAT WAS GOING TO BE DEVELOPED AND IN EXCHANGE OF THE SAID RIGHT, THE ASSESSEE WAS GIVEN RIGHT OVER ONE FLAT INITIALLY AND ON ANOTHER FLAT SUBSEQUENTLY. HE SUBMITTED THAT THE ASSESSEE HAS VALUED THE RIGHT OVER THE FLATS AT RS.22.00 LAKHS EACH AND OFFERED THE SAME AS HIS BUSINESS INCOME IN AY 2007 - 08 AND 2008 - 09. HOWEVER, SINCE THE PROJECT DID NOT TAKE PLACE AND SINCE BOTH THE PARTIES AGREE D TO SETTLE THE MATTER BY PAYING COMPENSATION OF RS.70.00 LAKHS, THE ASSESSEE OFFERED THE DIFFERENCE AMOUNT OF RS.26.00 LAKHS (RS.70.00 ( - ) RS.44.00) AS HIS INCOME IN AY 2010 - 11. ACCORDINGLY HE SUBMITTED THAT THE EXISTENCE OF FLAT IS NOT AN ESSENTIAL COND ITION TO DETERMINE THE DATE OF ACCRUAL OF INCOME. HE SUBMITTED THAT THE ASSESSEE HAD VALUED ITS RIGHT AND OFFERED THE SAME AS HIS INCOME AS PER THE MOU AND HENCE THE ASSESSEE COULD BE ASSESSED ONLY TO THE EXTENT OF RS.26.00 LAKHS IN AY 2010 - 11. 6. ON THE CONTRARY, THE LD D.R PLACED STRONG RELIANCE ON THE ORDER OF LD CIT(A). HE SUBMITTED THAT THE ASSESSEE HAS OFFERED INCOME IN THE EARLIER YEARS ON THE BASIS OF UNREGISTERED MOU AND FURTHER THE FLATS WERE NOT CONSTRUCTED AT THAT POINT OF TIME. HENCE TH E ENTIRE INCOME OF RS.70.00 ITA NO. 6197/ MUM/ 2013 4 LAKHS HAS ACCRUED TO THE ASSESSEE ONLY AT THE TIME OF FINAL SETTLEMENT THAT TOOK PLACE IN THE YEAR RELEVANT TO AY 2010 - 11. 7. IN THE REJOINDER, THE LD A.R SUBMITTED THAT THE FINAL SETTLEMENT WAS ALSO REACHED THROUGH AN UNRE GISTERED DOCUMENT. HE SUBMITTED THAT THE ASSESSEE HAS ACQUIRED ONLY A RIGHT OVER THE PROPERTY/FLATS AND HE HAS OFFERED THE SAME AS WHEN IT HAS ACCRUED TO HIM. 8. HAVING HEARD RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THERE IS SOME MERIT IN THE CONTE NTIONS OF THE ASSESSEE. WE HAVE NOTICED EARLIER, THE BUILDER HAS AGREED TO OFFER TWO FLATS TO THE ASSESSEE, SINCE THE ASSESSEE WAS HAVING SOME RIGHT OVER THE PLOT OF LAND. THE SAID RIGHT WAS AGREED TO BE SETTLED BY ALLOTTING ONE FLAT INITIALLY AND ANOTHE R FLAT SUBSEQUENTLY. SINCE THE ASSESSEE IS IN REAL ESTATE BUSINESS, HE HAS OFFERED THE VALUE OF FLATS ESTIMATED AT RS.22.00 LAKHS EACH IN AY 2007 - 08 AND 208 - 09. HOWEVER, WHEN THE PROJECT DID NOT MATERIALIZE , THE BUILDER AGREED TO SETTLE THE RIGHTS OF THE ASSESSEE OVER THE PLOT BY PAYING A LUMP SUM COMPENSATION OF RS.70.00 LAKHS, MEANING THEREBY, THE ASSESSEE WILL NOT BE GETTING THE TWO FLATS AS ORIGINALLY AGREED. THUS, WE NOTICE THAT THE VALUE OF THE RIGHT OF THE ASSESSEE OVER THE PLOT OF LAND HAS INCREA SED OVER THE PASSAGE OF TIME AND THE ASSESSEE HAS OFFERED THE INCOME AS AND WHEN THE SAME WAS QUANTIFIED. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE CLAIM OF THE ASSESSEE THAT THE ONLY INCREMENTAL INCOME OF RS.26.00 LAKHS SHOULD BE ASSESSED IN AY 2010 - 11. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ASSESS THE AMOUNT OF RS.26.00 LAKHS ONLY IN AY 2010 - 11 AS ORIGINALLY OFFERED BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE DIRECTION GIVEN BY THE LD CIT(A) TO EXCLUDE THE I NCOME OF RS.44.00 LAKHS IN THE EARLIER YEARS STANDS DELETED. ITA NO. 6197/ MUM/ 2013 5 9. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE ON THE REASONING THAT THE ASSESSEE HAS DIVERTED INTEREST BEARING FUNDS FOR NON - BUSINESS PURPOSES. THE LD A.R SUBMI TTED THAT THE ASSESSEE HAS GIVEN ADVANCES IN CONNECTION WITH HIS BUSINESS ACTIVITIES ONLY AND HENCE THERE IS COMMERCIAL EXPEDIENCY IN GIVING THOSE ADVANCES. HE FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS AND HENCE IT CANNO T BE PRESUMED THAT THE INTEREST BEARING FUNDS HAVE BEEN DIVERTED. HOWEVER WE NOTICE THAT THE LD CIT(A) HAS UPHELD THE DISALLOWANCE ONLY ON THE REASONING THAT THE ASSESSEE HAS FAILED TO FURNISH RELEVANT DETAILS, WHICH FACT WAS DISPUTED BY LD A.R. 10. WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER IN VIEW OF THE CONTENTIONS OF THE ASSESSEE CITED ABOVE. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE A O WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH BY DULY CONSIDERING THE INFORMATION AND EXPLANATIONS OF THE ASSESSEE. WE ALSO DIRECT THE ASSESSEE TO FURNISH ALL THE DETAILS THAT MAY BE CALLED FOR BY THE AO. 11. IN THE RESULT, THE APPEAL OF THE ASSESSE E IS TREATED AS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 1ST JAN,2016 . 1 ST JAN, 2016 SD SD ( AMARJIT SINGH ) ( B .R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 1 ST JAN , 2015 . . . ./ SRL , SR. PS ITA NO. 6197/ MUM/ 2013 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI