Maheswari Mega Venltures Ltd., Hyderabad V. DCIT, Hyderabad

ITA 985/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61847 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-09-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Retrospective amendment; Cost of acquisition; Revenue expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 985/HYD/2010 ASSESSMENT YEAR 2006-07 M/S. MAHESWARI MEGA VENTURES LTD., HYDERABAD PAN: AADCM9780D VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-16(2) HYDERABAD APPELLANT RESPONDENT ITA NO. 1030/HYD/2010 ASSESSMENT YEAR 2006-07 THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-16(2) HYDERABAD VS. M/S. MAHESWARI MEGA VENTURES LTD., HYDERABAD PAN: AADCM9780D APPELLANT RESPONDENT S.A. NO. 06/HYD/2012 IN ITA NO. 985/HYD/2010 ASSESSMENT YEAR 2006-07 M/S. MAHESWARI MEGA VENTURES LTD., HYDERABAD PAN: AADCM9780D VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-16(2) HYDERABAD APPELLANT RESPONDENT ASSESSEE BY: SHRI Y. RATNAKAR REVENUE BY: SHRI V. SRINIVAS DATE OF HEARING: 08.03.2012 DATE OF PRONOUNCEMENT: 30.04.2012 O R D E R PER CHANDRA POOJARI, AM: THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 14.5.2010 FOR ASSESSMENT YEAR 2006- 07. THE ASSESSEE ALSO FILED A STAY PETITION SEEKIN G THE STAY OF OUTSTANDING DEMAND OF TAX AT RS. 43,69,007. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF REAL ESTATE, CONSTRUCTING FLATS, SALE O F LAND AND RUNNING OF A RESTAURANT FOR A.Y. 2006-07. THE ASSESSEE FIL ED A RETURN OF INCOME ON 29.11.2006 ADMITTING TOTAL INCOME OF RS. 1,00,39,650. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143(3) BY DETERMINING THE TOTAL INCOME AT RS. 5,60,31,985. I N THE RETURN OF INCOME, THE ASSESSEE DISCLOSED LONG TERM CAPITAL GA IN AS FOLLOWS: RS. RS. SALE OF LAND (5 ACRES) 12,50,00,000 LESS: DEVELOPMENT COST 2,31,50,000 INDEXED COST OF LAND 9,18,10,345 LONG TERM CAPITAL GAIN 1,00,39,655 2.1 DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R FOUND THAT NO EVIDENCE WAS AVAILABLE REGARDING THE AFOREM ENTIONED DEVELOPMENT EXPENSES CLAIMED BY THE ASSESSEE. HE AL SO NOTICED THAT THE DIRECTOR SRI RAJ KUMAR MALPANI HAD HIMSELF ADMITTED DURING THE COURSE OF SURVEY THAT NO SUCH EXPENDITUR E HAD BEEN INCURRED. ACCORDINGLY, THE DEVELOPMENT EXPENDITURE CLAIMED ABOVE WAS DISALLOWED. FURTHER, IT WAS ALSO BROUGHT OUT FROM THE RECORD BY THE ASSESSING OFFICER THAT ON 5.4.2002, M R. MOHD. KHAZIM ALI KHAN, THE LAND OWNER ENTERED INTO A MEMO RANDUM OF UNDERSTANDING (MOU) WITH SRI RAJ KUMAR MALPANI. TH IS WAS ENTERED INTO BY MR. MALPANI IN HIS PERSONAL CAPACIT Y WHEREIN HE RECEIVED THE RIGHTS OF DEVELOPMENT OF LAND FROM THE LANDLORD I.E., MR. KHAZIM ALI KHAN. HE ALSO RECEIVED THE RIGHTS TO SELL THE LAND. THE ASSESSEE COMPANY WAS NOT IN EXISTENCE AT THAT T IME AND WAS INCORPORATED DURING THE FINANCIAL YEAR 2004-05. THE REAFTER, THE ASSESSEE-COMPANY ENTERED INTO A MOU WITH THE LANDLO RD ON 09.01.2006 WHEREBY THE ABOVE MENTIONED RIGHTS WERE GIVEN TO THE ASSESSEE COMPANY. A PORTION OF THE TOTAL LAND I.E. , 5 ACRES WAS CLAIMED TO HAVE BEEN SOLD IN THE MONTH OF MARCH, 20 06. THE COMPANY CLAIMED LONG TERM CAPITAL GAINS WITH EFFECT FROM 5.4.2002 ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 3 I.E., PRIOR TO THE DATE OF INCORPORATION OF THE COM PANY. THE ASSESSING OFFICER NOT ONLY DISALLOWED THE CLAIM OF THE ASSESSEE WITH RESPECT TO LONG TERM CAPITAL GAINS BUT ALSO AS SESSED THE AFOREMENTIONED INCOME AS INCOME FROM BUSINESS. IT W AS HELD THAT FIRSTLY, THE COMPANY COULD NOT CLAIM LONG TERM CAPI TAL GAINS FROM THE PERIOD WHEN IT WAS NOT IN EXISTENCE AND THE MOU ENTERED INTO IN 2002 BY THE PRESENT MANAGING DIRECTOR IN HIS IND IVIDUAL CAPACITY CANNOT BE CONSIDERED FOR CALCULATING THE P ROFITS OF THE COMPANY. FURTHER, IT WAS HELD THAT THE ASSESSEE WA S CARRYING ON BUSINESS OF REAL ESTATE AND AS SUCH THE CLAIM FOR L ONG TERM CAPITAL GAINS CANNOT BE ALLOWED. 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT THE 5 ACRES OF LAND IN QUESTIO N WERE SOLD FOR RS. 12.5 CRORES TO M/S. PRAKRUTHI INFRASTRUCTURE & DEVELOPMENT CO. LTD., WHO HAD PAID CASH OF RS. 4 CRORES. MOU WA S ENTERED INTO WITH M/S PRAKRUTHI INFRASTRUCTURE & DEVELOPMENT CO. LTD., WITH RESPECT TO THE SALE OF THE AFOREMENTIONED LAND. AS PER THIS MOU, IT WAS CLEARLY MENTIONED THAT THE ASSESSEE WAS AN ASSI GNEE WITH RESPECT TO THE LANDLORD AND IT GOT THE RIGHTS TO DE VELOP THE PROPERTY, TO SETTLE DISPUTES AND CLAIMS AND ALSO TO SELL THE SAME, REALIZING THE SALE AMOUNTS WITH ITSELF. THE ASSESSE E COMPANY STATED THAT IT HAS WRONGLY CLAIMED LONG TERM CAPITA L GAINS. IN ACTUALITY, IT NEVER HAD ANY RIGHTS OVER THE LAND SO LD AND HAD OFFERED LONG TERM CAPITAL GAINS IN A MISTAKEN BELIE F. THE ASSESSEE CLAIMED THAT ACTUALLY NOTHING WAS TAXABLE IN ITS HA NDS. CONSIDERING ALL THE FACTS OF THE CASE, THE ASSESSIN G OFFICER MADE AN ADDITION OF RS. 5 CRORES ON THIS ISSUE BY REDUCING THE PURCHASE COST OF LAND AMOUNTING TO RS. 7.5 CRORES FROM THE S ALE CONSIDERATION OF RS. 12.5 CRORES. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 4 3. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE HA S RECEIVED ONLY RS. 4 CRORES AS PER THE AGREEMENT AND THE BALANCE RS. 8.5 CRORES HAS NOT ACCRUED TO THE ASSESSEE ON T HE DATE OF FINAL CONVEYANCE DEED SIGNED AND THE LAND IS HANDED OVER TO THE PURCHASER AND THE AMOUNT RECEIVED BY THE ASSESSEE A T RS. 4 CRORES HAS TO BE ASSESSED AS BUSINESS INCOME AFTER REDUCIN G THE PROPORTIONATE COST OF LAND. AGAINST THIS FINDING O F THE CIT(A), BOTH THE PARTIES ARE IN APPEAL BEFORE US. 4. THE LEARNED AR SUBMITTED THAT THERE IS NO ACCRUAL O F INCOME AT ALL AND NO PART OF THE ADVANCE RECEIVED O F RS. 4,00,00,000 IS LIABLE TO TAX BECAUSE OF THERE WAS N O TRANSFER OF THE PROPERTY BY THE ASSESSEE IN FAVOUR OF PRAKRUTI INFR ASTRUCTURE & DEVELOPMENT CO. LTD. THE PROPERTY WHICH WAS AGREE D TO BE PURCHASED FROM MOHD. KAZIM ALI KHAN WAS UNDER LITIG ATION AND TITLE IS NOT ESTABLISHED. THERE WAS NOT EVEN DELIV ERY OF POSSESSION FOR ANY DEEMED TRANSFER TO BE INFERRED BY THE ASSES SEE. THE ASSESSEE DID NOT HAVE ANY POSSESSION OF THE PROPERT Y AT ALL. WHAT WAS RECEIVED WAS MERELY AN ADVANCE WHICH IS LIABLE TO BE REFUNDED IF THE TRANSFER IS NOT COMPLETED. THE MEMORANDUM OF UNDERSTANDING DATED 23.2.2006 SHALL STAND CANCELLED . ACCOUNTING ENTRIES DO NOT BRING ABOUT ANY ACCRUAL OF INCOME AN D WHAT IS TO BE CONSIDERED IS THE LEGAL EFFECT OF THE TRANSACTION A ND NOT THE ACCOUNTING ENTRIES. 4.1 THE AR SUBMITTED THAT THE ISSUES THAT ARISE FOR CONSIDERATION BEFORE THE TRIBUNAL ARE AS WHETHER TH ERE WAS ANY TRANSFER OF PROPERTY, WHAT IS THE NATURE OF RECEIPT OF THE AMOUNT RECEIVED BY THE ASSESSEE AND WHETHER THERE WAS ANY ACCRUAL OF INCOME AND WHETHER ENTRIES IN BOOKS BRING ABOUT ACC RUAL OF INCOME. THE LEARNED AR DREW OUR ATTENTION TO PARA -5 (AT PAGES 3 TO 5) AND PARA 7 AT PAGE 7 OF THE PAPER BOOK. THE FACTUAL POSITION ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 5 RELEVANT FOR DECIDING THE ISSUE RELATING TO WHETHER THERE WAS ANY ACCRUAL OF INCOME AT ALL HAS BEEN NARRATED AND THE SAME POSITION IS REITERATED. THE MEMORANDUM OF UNDERSTANDING DAT ED 23.2.2006 WITH PRAKRUTHI INFRASTRUCTURE & DEVELOPMENT CO. LTD., DID NOT RESULT IN ANY ACCRUAL OF INCOME. THE ADVAN CE OF RS. 4 CRORES UNDER THE MEMORANDUM OF UNDERSTANDING IS NOT INCOME. IT IS MERELY AN ADVANCE. THE SAID AMOUNT BECOMES THE I NCOME OF THE ASSESSEE UNDER THE AGREEMENT UPON CONVEYANCE AND DE LIVERY OF POSSESSION, UPON COMPLETION OF SALE TRANSACTION AND THE INTENDING PURCHASER VIZ. PRAKRUTHI INFRASTRUCTURE & DEVELOPMENT COMPANY LTD. BEING PUT IN THE POSSESSION OF THE PROPERTY AG REED TO BE SOLD. ONLY AFTER OBTAINING ALL CLEARANCES AND ENCUMBRANCE S AND ACQUIRING FREE AND CLEAR MARKETABLE TITLE BY THE AS SESSEE IN A SPAN OF 3 MONTHS PERIOD. FAILURE TO DO SO, THE MONEY HA S TO BE REFUNDED. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006-07, NONE OF THE ABOVE EVENTS HAVE TAKEN P LACE AND WHAT WAS RECEIVED CONTINUED TO REMAIN AS ADVANCE. PRAKR UTHI INFRASTRUCTURE & DEVELOPMENT COMPANY LTD. SUBSEQUENTLY ADDRESSED THE LETTERS DATED 10.11.2008, 15.1.2009 A ND 14.10.2009 TO THE ASSESSEE AS THE TRANSACTION REMAI NED INCOMPLETE. THESE LETTERS WILL DEMONSTRATE THAT THE PURCHASER HAS CANCELLED THE AGREEMENT, WITHDREW THE MEMORANDUM OF UNDERSTANDING AND REQUIRED PAYMENT OF ADVANCE WITH 18% AS INTEREST. THE ABOVE LETTERS WILL ALSO DEMONSTRATE W HAT WAS PAID WAS AN ADVANCE AND THE SAID AMOUNT DID NOT PARTAKE THE CHARACTER OF INCOME IN THE HANDS OF THE ASSESSEE. FOR THIS PROPOSITION THE ASSESSEE RELIED ON THE FOLLOWING DE CISIONS: A. CIT VS. HINDUSTAN HOUSING & LAND DEVELOPMENT TRUST LTD., 161 ITR 524. B. GODHRA ELECTRICITY CO. LTD. VS. CIT, 225 ITR 746 C. E.D. SASOON & CO. VS. CIT, 26 ITR 27 D. CIT VS. PROVISIONAL FARMERS (P) LTD., 108 ITR 220 ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 6 4.2 RELYING ON THE ABOVE DECISIONS, THE AR SUBMITTED TH AT THE ASSESSEE IS NOT LEGALLY ENTITLED TO THE MONEYS WHIC H IT HAS RECEIVED AS ITS OWN MONEY. THERE IS NO DEBT ON THE PART OF THE PURCHASER IN FAVOUR OF THE ASSESSEE UNTIL THE ACTUAL CONVEYANCE TAKES PLACE OR THE POSSESSION IS DELIVERED. THE ASSESSEE HAS NOT ACQUIRED THE RIGHT TO RECEIVE INCOME BECAUSE THE ASSESSEE HAS NO T RENDERED THE SERVICES WHICH IT HAS UNDERTAKEN WHICH WOULD HAVE C REATED A DEBT IN ITS FAVOUR. THERE IS NO ENFORCEABLE RIGHT ON THE PART OF THE ASSESSEE COMPANY TO RETAIN THE AMOUNT RECEIVED BY I T AS ITS OWN WITHOUT REFUNDING IT. ANY PROPERTY TRANSFER PENDING LITIGATION CANNOT DEFEAT THE RIGHTS OF THE TRUE OWNER. PRIME P ROPERTIES WERE DECLARED TO BE THE OWNER BY THE HON'BLE HIGH COURT. THEREFORE NO RIGHTS FLOWED TO THE ASSESSEE UNDER AGREEMENT DATED 9.1.2006 AND ALSO UNDER M.O.U. DATED 23.2.2006. FOR THE ABOVE R EASONS, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON THE FACT S AVAILABLE ON HAND, THERE IS NO ACCRUAL OF INCOME AT ALL UPON THE EXECUTION OF MOU DATED 23.2.2006. 4.3 THE LEARNED AR FURTHER SUBMITTED THAT MERE ACCOUNTI NG ENTRIES DO NOT DETERMINE THE ACCRUAL OF INCOME. HE INVITED OUR ATTENTION TO THE FOLLOWING DECISIONS WHICH ARE DIRE CTLY ON THE SUBJECT: A. CIT VS. M/S. SHOORJI VALLABHDAS & CO., 46 ITR 144 ( SC) B. CIT VS. INDIA DISCOUNT CO. LTD., 75 ITR 191 (SC) C. CIT VS. BIRLA GWALIOR (P) LTD., 89 ITR 266 (SC) D. CIT, TAMIL NADU VS. MOTOR CREDIT CO. LTD., 127 ITR 572 (MAD.) E. KESHAV MILLS LTD. VS. CIT, 23 ITR 230 (SC) F. KEDARNATH JUTE MFG. CO. LTD. VS. CIT, 82 ITR 363 G. CIT VS. KALINGA TUBES LTD., 218 ITR 164 (SC) 4.4 IN VIEW OF THE ABOVE, THE AR SUBMITTED THAT MERELY BECAUSE THE ACCOUNTING ENTRIES WERE MADE IN THE BOOKS OF AC COUNTS AS IF TRANSFER HAS TAKEN PLACE IT CANNOT BE TAKEN AS AN I NDICATIVE OF THE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 7 LEGAL EFFECT OF THE TRANSACTION ENTERED. IT IS ALS O SUBMITTED THAT THE LEGAL EFFECT OF TRANSACTION CAN ONLY BE DETERMINED BASED ON THE TERMS AND CONDITIONS CONTAINED IN THE AGREEMENT ON ITS PROPER AND TRUE INTERPRETATION. FOR THE ABOVE REASONS, HE SUBMITTED THAT NO PART OF THE SUM OF RS. 4 CRORES RECEIVED AS ADV ANCE IS LIABLE TO TAX FOR THE ASSESSMENT YEAR 2006-07. THE AMOUNT REC EIVED HAS TO BE CONSIDERED AS MERELY AN ADVANCE WHICH HAS NOT BE COME THE INCOME IN THE HANDS OF THE ASSESSEE DURING THE YEAR . 4.5 WITH REGARD TO TAXING THE AMOUNT UNDER THE HEAD 'BU SINESS INCOME', THE LEARNED AR SUBMITTED THE LEARNED CIT(A ) HAS NOT REBUTTED THE SAME NOR ADVERTED TO THE SUBMISSIONS F ILED BY THE ASSESSEE. EVEN IF ANY INCOME IS LIABLE TO TAX, IT IS ONLY AS CAPITAL GAIN AND NOT BUSINESS INCOME. 4.6 THE LEARNED AR SUBMITTED THAT THE WRITTEN SUBMISSIO NS FILED BEFORE THE CIT(A) BUT THE CIT(A) DISPOSED OF THE EN TIRE APPEAL WITHOUT ANY REFERENCE TO ANY OF THE SUBMISSIONS FIL ED BEFORE HIM. THE REASONS FOR NOT REFERRING TO THESE SUBMISSIONS ARE NOT WITHIN THE KNOWLEDGE OF THE ASSESSEE. HOWEVER, THE ASSESSE E STATES THAT THE LEARNED CIT(A) HAS NOT GONE INTO THE DETAILED A RGUMENTS FILED ON 10.2.2010. THE ASSESSEE SUBMITS THAT THESE ARGU MENTS APPEAR TO HAVE BEEN FORWARDED AND A REMAND REPORT WAS CALL ED FROM THE ASSESSING OFFICER AND THE ASSESSING OFFICER SENT HI S REPORT DATED 5.3.2010. AFTER RECEIVING THIS REMAND REPORT, OBJEC TIONS WERE ALSO FILED BY THE ASSESSEE BEFORE THE CIT(A) ON 24.3.201 0. OBJECTIONS RAISED TO THE REMAND REPORT HAVE ALSO NOT BEEN REFE RRED TO BY THE CIT(A) WHILE DISPOSING OF THE APPEAL. 4.7 THE AR SUBMITTED THAT THE CIT(A) OBSERVED THAT THE ASSESSEE NEVER INTENDED TO BE THE OWNER OF THE LAND IN QUEST ION. THE BUSINESS OF THE ASSESSEE HAS NO CONNECTION WITH THE ASSESSEE'S OWNERSHIP OF THE LAND IN QUESTION. THE ASSESSEE IS TO BE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 8 COMPENSATED FOR THE BUSINESS ACTIVITIES OTHER THAN THE OWNERSHIP IN LAND. THE SUM OF RS. 4 CRORES PAID DURING THE Y EAR ACCRUED TO THE ASSESSEE. DISPUTES ARE CONTINUING AND THE AMOUN T OF RS. 4 CRORES HAS NOT BEEN REFUNDED. REFERENCE IS MADE TO THE DECISION OF THE BOMBAY HIGH COURT OF ESTATES, INVESTMENT (P) LT D. VS. CIT, 121 ITR 580 THAT WHERE THE ASSESSEE SHOWS PRICE AS HAVI NG BEEN RECEIVED, PROFIT ACCRUES EVEN IF A SALE DEED IS NOT EXECUTED. REFERENCE IS MADE TO THE DECISION OF THE SUPREME CO URT IN CIT VS. BANGALORE TRANSPORT CO. LTD. REPORTED IN 66 ITR 373 IN SUPPORT THAT IN BUSINESS WHATEVER MONEY IS RECEIVED WOULD C ONTAIN ELEMENT OF INCOME. NO DEVELOPMENT WAS DONE ON THE L AND. BROADLY ABOVE ARE THE REASONS ON THE BASIS OF WHICH THE LEA RNED COMMISSIONER OF INCOME TAX REDUCED THE ASSESSABLE I NCOME WITHOUT ACCEPTING THE ASSESSEE'S BASIC CONTENTION T HAT NO INCOME ACCRUED AT ALL. 4.8 THE AR FURTHER SUBMITTED THAT THE ABOVE OBSERVATION S OF THE CIT(A) DO NOT ESTABLISH THE ACCRUAL OF INCOME BECAU SE THE AGREEMENT DATED 9.1.2006 BY THE ASSESSEE WITH MOHD. KHAZIM ALI KHAN IS FOR DEVELOPMENT OF THE PROPERTY AFTER SETTL EMENT OF CLAIMS. IT IS CLEARLY UNDERSTOOD THAT THE ASSESSEE WILL HOL D AN EXTENT OF 25 ACRES OF LAND FOR ITS OWN PURPOSES. ANY AMOUNT REC EIVED OUT OF THE REMAINING 75 ACRES IS FOR SETTLEMENT OF CLAIMS AND EXCESS IS TO BE REFUNDED TO THE VENDOR MOHD. KHAZIM ALI KHAN. THESE MONEYS WHICH ARE RECEIVED FOR SETTLEMENT OF CLAIMS ARE NOT THE MONEYS OF THE ASSESSEE. THEY HAVE TO BE PASSED ON TO THE VEND OR. IT NEVER CONSTITUTED THE ASSESSEE'S FUNDS. THE ASSESSEE IS ENTITLED TO ONLY 25 ACRES. WHAT WAS AGREED TO BE SOLD TO PRAKRUTHI I NFRASTRUCTURE & DEVELOPMENT CO. LTD., IS 5 ACRES OF LAND. THE AGREE MENT IS FOR SALE OF LAND NOT FOR SETTLEMENT OF DISPUTES. EVEN I N THE COMPUTATION, THE SALE CONSIDERATION PAYABLE FOR EAC H ACRE IS REDUCED. THE MEMORANDUM OF UNDERSTANDING ENTERED WI TH THE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 9 PURCHASER SPEAKS OF TRANSFER OF LAND AND DELIVERY O F POSSESSION. IF THIS AGREEMENT IS NOT FOR THE SALE OF LAND, THEN FO R WHAT OTHER PURPOSE THE MEMORANDUM OF UNDERSTANDING ENTERED INT O IS NOT KNOWN. THE LEARNED CIT(A) HAS COMPLETELY MISUNDERS TOOD THE SCOPE OF AGREEMENT. THE AGREEMENT IS FOR BUYING 25 ACRES OF LAND AND THE REMAINING LAND SHOULD BE UTILIZED FOR CLEAR ING OTHER DISPUTES AND EXCESS MONEY IS TO BE RETURNED TO THE OWNER. THE APPELLANT IS NOT ENTITLED TO ANY PROFIT OR INCOME O THER THAN ANY SURPLUS WHICH IT MAY EARN ON THE 25 ACRES OF LAND T O WHICH IT IS ENTITLED TO. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) APPEAR TO HAVE MIXED UP THE ISSUES WHILE ARRIVING A T THE CONCLUSION. 4.9 WITH REGARD TO THE DECISION OF BOMBAY HIGH COURT IN ESTATES INVESTMENT (P) LTD. VS. CIT (121 ITR 580) (BOM), TH E AR SUBMITTED THAT THE FACTS HEREIN ARE TOTALLY DIFFERENT. IN THE INSTANT CASE, THE LAND WAS HELD FOR THE PURPOSE OF BUSINESS. THE ASSE SSEE HAS DONE EVERYTHING, DELIVERED POSSESSION, COMPLIED WITH ALL ITS OBLIGATIONS AND RECEIVED THE PRICE. THE ONLY ACTIVITY REMAINING IS THE EXECUTION OF SALE DEED AS THE ENTIRE PRICE IS RECEIVED AND TH E POSSESSION IS DELIVERED IT DECLARED INCOME IN ITS BOOKS. THERE IS NO DISPUTE ON THE TITLE OF THE PROPERTY. THERE WAS NOTHING FURTHE R TO BE DONE BY THE ASSESSEE. THE FACTS IN THE ABOVE CASE ARE TOTAL LY DIFFERENT FROM THE FACTS ON HAND. THE TITLE IS IN DISPUTE. THE P OSSESSION IS NOT DELIVERED. ONLY A PORTION OF SALE CONSIDERATION IS RECEIVED. TIME LIMIT IS PRESCRIBED FOR DELIVERY OF POSSESSION AND EXECUTION OF SALE DEED AND HAVE NOT BEEN COMPLIED WITH. THEREFORE, TH E DECISION OF THE BOMBAY HIGH COURT HAS NO RELEVANCE IN THE GIVEN SET OF FACTS. 4.10 REGARDING THE DECISION OF THE SUPREME COURT IN BANG ALORE TRANSPORT CO. (P) LTD. (66 ITR 373) (SC), THE LEARN ED AR SUBMITTED THAT IT MAY BE TRUE THAT WHERE MONEY IS RECEIVED, I T MAY CONTAIN ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 10 ELEMENT OF INCOME. HOWEVER, THE REQUIREMENT IS THAT THE MONEY SHOULD BE RECEIVED AS OWN MONEY AND THERE SHOULD BE ENFORCEABLE RIGHT TO RECEIVE THE MONEY AND OF MERELY RECEIVE IT AS AN ADVANCE TO BE REFUNDED IN CASE THE OBLIGATIONS ARE NOT COMP LIED WITH. THEREFORE, BOTH THE DECISIONS REFERRED TO ARE INAPP LICABLE. 4.11 THE AR SUBMITTED THAT IT IS TRUE THAT NO DEVELOPMEN T COULD BE MADE ON THE LAND FOR THE REASON THAT THE ASSESSE E HOPED THAT THE LITIGATION WILL COME TO AN END THAT IT WOULD BE ABLE TO OBTAIN THE POSSESSION OF PROPERTY AND THAT IT CAN START TH E PROCESS OF DEVELOPMENT. THIS HAS NOT TAKEN PLACE. ON THE CONTR ARY TITLE WAS HELD TO BE IN FAVOUR OF SOMEONE ELSE BY THE A.P, HI GH COURT AND THE POSSESSION OF LAND IS ALSO NOT WITH THE ASSESSE E. IN THE GIVEN SET OF FACTS, IT WAS NOT POSSIBLE TO START THE DEVE LOPMENT ACTIVITY. IT WAS NOT AS IF THE ASSESSEE DID NOT WANT TO START AN Y DEVELOPMENT. THE CIRCUMSTANCES SO CONSPIRED WHICH LED THE ASSESS EE NOT BEING ABLE TO START THE WORK. HENCE, THE CONCLUSION AND T HE UNDERSTANDING OF THE LEARNED CIT(A) OF THE AGREEMEN T IS ERRONEOUS AND ARE NOT LEGALLY SUSTAINABLE. 5. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE LEARNED AR PUT LENGTHY AR GUMENTS THAT INCOME CANNOT BE ASSESSED UNDER THE HEAD 'INCOME FR OM BUSINESS' THOUGH THIS CLAIM ITSELF HAS BEEN WITHDRAWN BEFORE THE LOWER AUTHORITIES AS ITS EVIDENT FROM PARA 6.3.1 OF THE C IT(A) ORDER. WITHOUT PREJUDICE TO THE ABOVE, IN OUR OPINION, THE ASSESSEE IS ENGAGED IN THE ACTIVITIES OF LAND DEVELOPMENT, CONS TRUCTION OF FLATS AND A COMMERCIAL COMPLEX, SALE OF LAND AND FACILITA TING SETTLING OF DISPUTES RELATING TO THE LAND IN QUESTION. THE ASS ESSEE WAS DEALING IN LAND WITH A MOTIVE TO EARN PROFIT. IT I S NOT THE GAIN MADE BY THE ASSESSEE BY MERE ENHANCEMENT OF VALUE B Y REALISING ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 11 THE INVESTMENT AND IN THE PRESENT CASE IT IS THE GA IN MADE BY THE ASSESSEE IS THROUGH OPERATION OF BUSINESS WITH AN I NTENTION OF MAKING PROFIT. IN OTHER WORDS, IF A PERSON BUYS AN D SELLS LAND OR INVESTMENTS AS A BUSINESS TO MAKE PROFIT AND, BY DE ALING IN SUCH INVESTMENT AS A BUSINESS, MAKES A GAIN, THAT IS NOT A CASE OF MERE REALISATION OF ASSETS OR CONVERSION OF ONE FORM OF ASSET INTO ANOTHER BUT WILL CLEARLY FALL WITHIN THE MEANING OF BUSINES S ACTIVITY OF THE ASSESSEE. IN THE PRESENT CASE, ORIGINALLY IN THIS CASE MOU WAS ENTERED BY SHRI RAJKUMAR MALPANI, MANAGING DIRECTOR OF THE ASSESSEE-COMPANY IN HIS INDIVIDUAL CAPACITY HAS ENT ERED INTO ON 5.4.2002 WITH SHRI MOHD. KHAZIM ALI KHAN, PARTNER O F M/S. SRIDEVI COLONIZERS WHEREIN HE RECEIVED THE RIGHT OF DEVELOPMENT OF LAND FROM THE LANDLORD AND ALSO UNDERTAKEN TO SETTL E THE DISPUTES INVOLVED IN THIS LAND. THEREAFTER, A LIMITED COM PANY, I.E., ASSESSEE, CAME INTO EXISTENCE FOR THE PURPOSE OF AC TING AS A BUILDER AND DEVELOPER AND IN THE COURSE OF CARRYING OUT THE BUSINESS THE ASSESSEE ENTERED INTO A MOU ON 9.1.200 6 WITH SHRI MOHD. KHAZIM ALI KHAN WHEREBY SHRI MOHD. KHAZIM ALI KHAN AGREED TO TRANSFER, ASSIGN 100 ACRES OF LAND IN HIS 50% SHARE, WHICH HE HOLDS IN THE FIRM M/S. SRIDEVI COLONIZERS IN FAVOUR OF THE ASSESSEE AND AFTER THIS, THE ASSESSEE ENTERED INTO A TRI-PARTITE MOU ALONG WITH M/S. RAJKUMAR MALPANI AND M/S. PRAKR UTHI INFRASTRUCTURE & DEVELOPERS PVT. LTD. ON 23.2.2006 FOR A SALE OF 5 ACRES OF LAND FOR A CONSIDERATION OF RS. 12.5 CRORE S. 7. THE WORD 'BUSINESS' IS DEFINED BY SECTION 2(13) OF THE IT ACT AS PER WHICH 'BUSINESS' INCLUDES ANY TRADE, COMMERC E, OR MANUFACTURE. 'TRADE' IN THE CONTEST OF DEFINITION IS A WIDER CONCEPT THAN AN ADVENTURE IN THE NATURE OF TRADE. AN ADVENTURE IN THE NATURE OF TRADE CANNOT, THEREFORE, BY ITSELF BE DESCRIBED AS A TRADE, BUT SHOULD OBVIOUSLY IMPLY IN ITSELF SOME AT LEAST OF THE ELEMENTS OF THE TRADE. IN THE PRESENT CASE THE ASS ESSEE'S INTENTION ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 12 IN ENTERING INTO THE MOU ON 9.1.2006 WITH MD. KHAZI M ALI KHAN FOR PURCHASE OF LAND AND DEVELOPMENT OF THIS LAND A ND SETTLEMENT OF ALL LEGAL DISPUTES WITH A VIEW TO MAKE PROFIT OU T OF THIS TRANSACTION AND IS A TRADING TRANSACTION. THE MOU ENTERED ON 9.1.2006 WITH NO INTENTION OF MAKING INVESTMENT. T HIS IS EVIDENT FROM CLAUSES (2) AND (3) OF THE MOU DATED 9.1.2006 WHICH READS AS FOLLOWS: 'THEREFORE THIS MEMORANDUM OF UNDER- STANDING WITNESSETH AS UNDER 1. THE FIRST PARTY HEREBY TRANSFERS, ASSIGNS 100 ACRES IN HIS 50% SHARE, WHICH HE HOLDS IN THE FIRM IN FAVOUR OF SECOND PARTY AND THE SECOND PARTY HEREBY BECAME THE HOLDER OF 100 ACRES OF 50% SHARE IN THE FIRM WITH ALL RIGHTS TO SHARE THE ASSET OF THE FIRM I.E. LAND IN SURVEY NO. 1007 OF KUKATPALLY VILLAGE, R.R. DISTRIC T AD MEASURING 100 ACRES OF OUT OF TOTAL EXTENT OF 287 A CRES. 2. IN LIEU OF THE ABOVE TRANSFER / ASSIGNMENT, THE SECOND PARTY HAS AGREED TO PAY THE CONSIDERATION AMOUNT IN THE FORM OF PARTLY CASH AND PARTLY IN KIN D BY DEVELOPING THE PROPERTY AFTER SETTLEMENT OF ALL THE CLAIMS. THE SECOND PARTY HAS MADE IT CLEAR TO THE F IRST PARTY THAT DURING THE PROCESS OF SETTLING THE CLAIM S WITH THE THIRD PARTIES, IT MAY BE ONLY IN CASH AND NOT W ITH THE LAND. HOWEVER, UNDER ANY CIRCUMSTANCES AN EXTEN T OF 100 ACRES WILL BE RETAINED AND OUT OF 100 ACRES, THE SECOND PARTY WILL RETAIN AND POSSESS AN EXTENT OF 2 5 ACRES FOR HIS OWN PURPOSES AND THE REMAINING EXTENT OF 75 ACRES WILL BE SOLD AND THE SALE PROCEEDS WILL BE PASSED ON THE FIRST PARTY AFTER SETTLING THE CLAIMS OF THIRD PARTIES OUT OF 75 ACRES OF LAND WITH THE CONS ENT OF THE FIRST PARTY. 3. IT IS MUTUALLY AND SPECIFICALLY AGREED THAT THE SECOND PARTY WILL PAY TO THE FIRST PARTY FOR AN ARE A OF 25 ACRES AT THE RATE OF RS. 1,50,00,000 (RUPEES ONE CRORE FIFTY LAKHS ONLY) PER ACRE TO THE FIRST PARTY AND THE RATE FIXED WILL BE PAYABLE BY THE SECOND PARTY TO T HE FIRST PARTY BY WAY OF DEVELOPING THE PROPERTY AND ADJUSTING THE RATE VALUE AT COST PRICE AS ON TODAY AND PART OF THE SUM IN CASH, WHICH WILL BE WORKED OUT MUTUALLY BY BOTH THE PARTIES. HOWEVER, THE FIRST PA RTY MAY OPT FOR ANY PART OF THE BUILT UP AREA IN THE PR OJECTS OF THE SECOND PARTY AT HYDERABAD AND THE SECOND PARTY HAS AGREED TO PROVIDE BUILT UP AREA TO THE FI RST PARTY, AS DESIRED, WITHIN ONE MONTH ON HIS NAME OR HIS NOMINEE. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 13 4. THE SECOND PARTY HAS PAID TOKEN ADVANCE OF RS. 1,01 ,00,000 (RUPEES ONE CRORE ONE LAKH ONLY) TO TH E FIRST PARTY UNDER THE THIS MOU THE RECEIPT OF WHICH THE FIRST PARTY HEREBY EXPRESSLY ADMITS AND ACKNOWLEDGE S AND THE SECOND PARTY SHALL PAY FURTHER AMOUNTS OF R S. TWO TO FIVE CRORES TO THE FIRST PARTY WITHIN ONE MO NTH FROM THE DATE OF THIS MOU. 5. THE FIRST PARTY HAS AUTHORIZED AND EMPOWERED THE SECOND PARTY WITH ALL POWERS TO DEAL WITH THE CLAIMANTS, PENDING PROCEEDINGS AND APPROACH THE AUTHORITIES I.E. URBAN LAND CEILING, REVENUE, LOCAL AUTHORITIES, ETC., CONCERNING THE LAND AND TO DO AL L ACTS IN A MANNER TO SAFEGUARD AND PROTECT THE RIGHTS OF THE FIRST PARTY. 6. THE FIRST PARTY WILL BE GIVEN SEPARATELY A POWER ATTORNEY IN FAVOUR OF THE SECOND PARTY FOR ALL PURP OSES CONCERNING THE RIGHTS HEREUNDER IN RESPECT OF LAND I.E. 100 ACRES IN SURVEY NO. 1007, KUKATPALLY, R.R. DISTRICT.' 8. THE ABOVE AGREEMENT SHOWS THAT THE ASSESSEE HAS NO INTENTION TO HOLD THE PROPERTY AS AN INVESTMENT AN D DERIVE INCOME FROM IT. THE ASSESSEE SOLD THE SAME WHEN THERE IS APPRECIATION IN ITS VALUE. HAD THE ASSESSEE HAD INTENTION TO SELL THE PROPERTY AT A LATER DATE AT A HIGHER VALUE IT COULD BE TRANSACTIO N OF CAPITAL GAIN AND NOTHING COMMERCIAL ABOUT IT? IT IS A REALISATI ON OF CAPITAL AND CONVERSION OF ONE FORM OF ASSET INTO ANOTHER FORM. IN THE PRESENT CASE, THE PROPERTY HAS BEEN COMMITTED TO A TRADE AN D THE ASSESSEE EARNED PROFIT IN THE COURSE OF CARRYING ON THE BUSI NESS WHICH AN ADVENTURE IN THE NATURE OF TRADE AND IN THIS COURSE I.E., IN THE OPERATION OF PROPERTY, THE ASSESSEE EARNED PROFIT A ND IT IS NOT JUST REALISATION OF PROPERTY. IN OUR OPINION, THE ASSE SSEE NEVER INTENDED TO BE OWNER OF THE LAND IN QUESTION AND IT WAS NOT A SIMPLE PURCHASE AND SALE TRANSACTION. RATHER, THE A SSESSEE FACILITATED THE DEVELOPMENT AND SALE OF LAND IN QUE STION APART FROM TAKING RESPONSIBILITY OF GETTING THE PROCESS OF DIS PUTES WITH RESPECT TO THE LAND SETTLED EXPEDITED. THEREFORE, IT IS CLE AR THAT THE ASSESSEE WAS CARRYING ON BUSINESS WITH THE ABOVE BU SINESS OBJECTIVES IN MIND. ITS MOTIVE WAS PROFIT AND ITS B USINESS WAS THAT ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 14 OF FACILITATING THE DISPUTE RESOLUTION, DEVELOPING THE LANDS AND FACILITATING THE SALE. IT WAS IN THE BUSINESS OF DI RECT SALE AND PURCHASE OF LAND. 9. IT BEING SO, IT IS INCOME FROM BUSINESS. THE ISOLA TED TRANSACTION OF THIS KIND COULD ALSO BE AN ADVENTURE IN THE NATURE OF TRADE. THE ASSESSEE PLEADED THAT THERE IS ONLY ONE TRANSACTION THAT CANNOT BE CONSIDERED AS BUSINESS ACTIVITY OF T HE ASSESSEE. WE ARE NOT AGREEING WITH THIS PROPOSITION SINCE IT IS NOT MERE REALISATION OF THE PROPERTY BUT CARRYING OUT OF AN ADVENTURE IN THE NATURE OF TRADE AS EVIDENT FROM THE MOU REPRODUCED HEREIN BELOW: 'THIS MEMORANDUM OF UNDERSTANDING IS MADE AND EXECUTED ON THIS THE 23 RD DAY OF FEBRUARY 2006. BY AND BETWEEN 1. M/S. MAHESHWARI MEGAVENTURES LIMITED, REPRESENTED BY ITS MANAGING DIRECTOR, SRI RAJ KUMAR MALPANI S/O. SRI JAGDISH PRASAD MALPANI, AGED 53 YEARS, R/O 73, GAFFAR KHAN COLONY, ROAD NO. 10, BANJARA HILLS, HYDERABAD 2. SRI RAJ KUMAR MALPANI S/O SRI. JAGDISH PRASAD MALPANI, AGED 53 YEARS, R/O. 73, GAFFAR KHAN COLONY , ROAD NO. 10, BANJARA HILLS, HYDERABAD, AND M/S. PRAKRUTHI INFRASTRUCTURE AND DEVELOPMENT COMPANY LIMITED HAVING ITS REGISTERED OFFICE AT NO, 4-1, TUMKUR ROAD, YESHWANTPUR BANGALORE-22, REPRESENTED BY ITS DIRECTOR MR. MANJUNATH, HEREINAFTER CALLED A S THE 'SECOND PARTY' WHEREAS THE FIRST PARTY IS THE ASSIGNEE & AGREEMENT HOLDER FROM SRI MOHD. KHAZIM ALI KHAN, SLO LATE JAF FER AII KHAN, AGED ABOUT 55 YEARS, RLO H.NO.8-3- 323, YELLAREDDYGUDA, AMEERPET, HYDERABAD IN RESPECT LAND S IN SURVEY NO.1 007, KUKATPALLY VILLAGE, R R DISTRIC T EVIDENCED BY MEANS TO TWO SEPARATE MOU'S DATE , THE FIRST PARTY HEREIN HAS GOT THE RIGHTS NOT ONLY TO D EVELOP ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 15 THE PROPERTY BUT ALSO TO SETTLE DISPUTES AND CLAIMS . AND WHEREAS THE FIRST PARTY HAVING RIGHTS UNDER THE MOU'S DATED __ FOR CARRYING OUT ON THE DEVELOPMENT AND SETTLEMENT PROCESS, AS ALSO GOT THE POWER TO DE AL WITH THE THIRD PARTIES OUT OF THE AGREED AREA AND T O REALIZE THE SALE AMOUNT FOR MAKING PAYMENT TO THE ASSIGNOR. AND WHEREAS THE SECOND PARTY HEREIN APPROACHED THE FIRST PARTY FOR THE PURPOSE OF PURCHASING AN EXTENT OF 5 (FIVE) ACRES OUT OF THE TOTAL EXTENT IN SURVEY NO.1 007, KUKATPALLY VILLAGE, R R DISTRICT AND ACCORDINGLY TH E SECOND PARTY NEGOTIATED AND DISCUSSED THE TERMS WIT H THE FIRST PARTY AND UNDER THE CONSENT OF SRI MOHD KHAZIM ALI KHAN AND THE SALE CONSIDERATION WAS FIXE D AT RS.12.5 ACRES AND THE SECOND PARTY HAS AGREED TO PAY THE SAME.' 10. IN OUR OPINION, THERE ARE ORGANISED EFFORTS BY THE ASSESSEE TO EARN PROFIT. THE SURROUNDING CIRCUMSTANCES SUGG EST THAT THE MOTIVE OF THE ASSESSEE IS NOTHING BUT CARRYING ON B USINESS. THE PRESENCE OF ORGANISATION SET UP FOR CARRYING OUT BU SINESS AND BUSINESS OPERATIONS CARRIED ON BY THE ASSESSEE SUGG EST THAT THE ASSESSEE EARNED INCOME THROUGH BUSINESS TRANSACTION S THAT SHOULD BE CONSIDERED AS BUSINESS ACTIVITY OF THE AS SESSEE. IN OUR OPINION, HAVING REGARD TO THE NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE IT HAS TO BE CONSTRUED AS TRADING ACTIVITY OF THE ASSESSEE AND THE INCOME EMERGED FROM THIS TRANSACTION HAS TO BE CONSIDERED AS INCOME FROM BUSINESS. FURTHER, IN OU R OPINION, THROUGH THE MOU DATED 23.2.2006, THE ASSESSEE IS EN TITLED TO RECEIVE RS. 12.5 CRORES AND IT IS ACCRUED TO THE AS SESSEE AS THE ASSESSEE HAS RIGHT TO RECEIVE THE SAME. AS THE ASS ESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND T HE WHOLE AMOUNT OF SALE SHOULD BE CONSIDERED AS ACCRUED TO T HE ASSESSEE. THE CIT(A) IS NOT JUSTIFIED IN CONSIDERING ONLY THE RECEIPT OF ADVANCE AMOUNT OF RS. 4 CRORES AS ACCRUED TO THE AS SESSEE INSTEAD OF CONSIDERING THE WHOLE AMOUNT OF RS. 12.5 CRORES TO DETERMINE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 16 THE INCOME FROM BUSINESS. FROM THE AGREEMENT WITH THE PURCHASER I.E., M/S. PRAKRUTHI INFRASTRUCTURE & DEV ELOPERS, IT IS CLEAR THAT THE AMOUNT ACCRUED TO THE ASSESSEE DURI NG CURRENT YEAR IS RS. 12.5 CRORES AND WAS PAID TO IT WAS RS.4 CROR ES AS MENTIONED IN THE AGREEMENT. THE BALANCE RS.8.5 CRORES WOULD BE PAID TO THE ASSESSEE ON THE DATE THE FINAL CONVEYANCE DEED IS S IGNED AND LAND IS HANDED OVER TO THE PURCHASER. IT IS TRUE THAT TH E AGREEMENT MENTIONS A TIME FRAME IN WHICH THE DISPUTES ARE TO BE SETTLED. THERE IS A STIPULATION THAT IF THE DISPUTES ARE NOT SETTLED AND THE LAND CANNOT BE CONVEYED, THEN THE ORIGINAL AMOUNT C AN BE REFUNDED. HOWEVER, THE FACTS ARE THAT THE DISPUTES ARE CONTINUING AND ARE PLACED IN THE HON'BLE SUPREME COURT AND THE AMOUNT OF RS.4 CRORES HAS NOT BEEN REFUNDED. THE MOU DATED 2 3.2.2006 IS NOT YET CANCELLED AND IT IS STILL IN FORCE. IT IS VALID AND ENFORCEABLE BY LAW. IF THERE IS ANY DISPUTE IT COULD BE SETTLE D MUTUALLY OR BEFORE A COURT OF LAW. THERE IS ALSO A CLAUSE IN T HE MOU THAT AN ADDITIONAL PERIOD OF 3 MONTHS TO COMPLETE THE TRANS ACTION. IT IS ALSO BE NOTED THAT THE MOU WAS ENTERED ON 23 RD FEBRUARY, 2006. BY 31 ST MARCH, 2006 I.E., DURING THE FINANCIAL YEAR RELEVA NT TO ASSESSMENT YEAR 2006-07 NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT THE MOU HAS BECOME INVALID OR CANCELLED O R ADVANCE MONEY HAS BEEN REFUNDED BY THE ASSESSEE TO THE PURC HASER. 11. WE WILL REFER TO THE LAW LAID DOWN IN A FEW CASES B Y VARIOUS COURT ON SIMILAR CIRCUMSTANCES. IN CHOWRINGHEE SAL ES BUREAU P. LTD. V. CIT [1973] 87 ITR 542 (SC), THE ASSESSEE A S AN AUCTIONEER EFFECTED SALES OF FURNITURE AND REALISED FROM THE B UYERS IN ADDITION TO THE COMMISSION RS. 32,986 AS SALES TAX. THE ASSE SSEE NEITHER PAID THIS AMOUNT TO THE ACTUAL OWNER OF THE GOODS O N WHOSE BEHALF THE GOODS WERE AUCTIONED NOR DEPOSITED THE SAME IN THE STATE EXCHEQUER UPON THE PLEA THAT THE STATUTORY PROVISIO N CREATING THAT LIABILITY UPON IT WAS NOT VALID. THE AMOUNT WAS ALS O NOT REFUNDED ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 17 TO THE PERSONS FROM WHOM IT HAD BEEN COLLECTED. THI S COURT HELD THE AMOUNT OF RS. 32,986 TO BE THE TRADING OR BUSIN ESS RECEIPTS OF THE AUCTIONEER (ASSESSEE). 12. TO THE SAME EFFECT ARE THE DECISIONS OF THIS COURT IN SINCLAIR MURRAY AND CO. PVT. LTD. V. CIT [1974] 97 ITR 615 AND CIT V. BAZPUR CO-OPERATIVE SUGAR FACTORY LTD. [1988] 172 ITR 321. IN THESE CASES IT HAS BEEN THE CONSISTENT VIEW OF THIS COURT THAT IF A RECEIPT IS A TRADING RECEIPT THE FACT THAT IT IS NO T SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NOT PREVENT THE ASSESSING AUTHORITY FROM TREATING IT AS A TRADING RECEIPT. IT IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER W HICH IT IS ENTERED IN THE ACCOUNT BOOKS WHICH ARE DECISIVE. TH IS COURT HAS FURTHER OBSERVED THAT EVENTUALLY IF THE AMOUNT SO C OLLECTED IS PASSED ON TO THE STATE GOVERNMENT OR REFUNDED TO TH E PURCHASERS, THE ASSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION O F THE SUM WHEN SO PAID OR REFUNDED. 13. IN PUNJAB DISTILLING INDUSTRIES LTD. V. CIT [1959] 35 ITR 519 (SC), THE ASSESSEE CARRIED ON BUSINESS AS A DISTILL ER OF COUNTRY LIQUOR AND SOLD THE PRODUCE TO LICENSED WHOLESALERS . THE GOVERNMENT DEVISED A SCHEME ENTITLING THE DISTILLER S TO CHARGE THE WHOLESALERS A PRICE FOR THE BOTTLES IN WHICH THE LI QUOR WAS SUPPLIED, AT THE RATES FIXED BY THE GOVERNMENT WHIC H PRICE WAS BOUND TO BE REPAID ON RETURN OF THE BOTTLES. THE DI STILLER COLLECTED FROM THE WHOLESALERS CERTAIN AMOUNT AS SECURITY DEP OSITS THOUGH NOT AUTHORISED BY THE GOVERNMENT SCHEME. THIS SECUR ITY DEPOSIT WAS ALSO RETURNED AS AND WHEN THE BOTTLES WERE RETU RNED. THIS ADDITIONAL SUM WAS ENTERED BY THE ASSESSEE UNDER TH E HEADING EMPTY BOTTLES RETURN DEPOSIT ACCOUNT. A QUESTION AROSE WHETHER THE ASSESSEE COULD BE ASSESSED TO TAX ON THE BALANC E OF THE AMOUNTS OF THESE ADDITIONAL SUMS LEFT WITH THE ASSE S- SEE AFTER THE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 18 REFUNDS WERE MADE. THIS COURT HELD THAT IN REALISIN G THE ADDITIONAL AMOUNT DESCRIBED AS SECURITY DEPOSIT, THE ASSESSEE WAS REALLY CHARGING AN EXTRA PRICE FOR THE BOTTLES. THE ADDITI ONAL AMOUNTS TAKEN WERE AN INTEGRAL PART OF THE COMMERCIAL TRANS ACTION OF THE SALE OF LIQUOR AND BOTTLES AND WHEN THEY WERE REALI SED THEY WERE THE MONEYS OF THE ASSESSEE AND REMAINED THEREAFTER THE MONEYS OF THE ASSESSEE. THEY WERE THE ASSESSEES TRADING RECE IPTS AND, THEREFORE, THE BALANCE OF THESE ADDITIONAL SUMS LEF T IN THE HANDS OF THE ASSESSEE AFTER THE REFUNDS WERE ASSESSABLE TO T AX. THIS COURT FURTHER HELD THAT IT DID NOT MAKE ANY DIFFERENCE TH AT THE ADDITIONAL AMOUNT WAS ENTERED IN A SEPARATE LEDGER UNDER THE H EAD EMPTY BOTTLES RETURN DEPOSIT ACCOUNT AS THE ASSESSEES S TYLE OF WRITING UP THE ACCOUNT BOOKS IN A PARTICULAR MANNER COULD N OT ALTER THE REAL NATURE OF THE RECEIPTS. 14. IN JONNALLA NARASIMHARAO AND CO. V. CIT [1993] 200 ITR 588 (SC), THE ASSESSEE, A COMMISSION AGENT, COLLECTED IN THE ASSESSMENT YEAR 1968-69 CERTAIN AMOUNTS BY WAY OF SALES TAX UNDER THE NAME RUSUM INASMUCH AS IT DISPUTED ITS LIABILITY TO PAY SALES TAX BY FILING VARIOUS LEGAL PROCEEDINGS. THE ACCOUNTS WERE MAINTAINED ON THE MERCANTILE SYSTEM. IN 1970, THERE WAS A RETROSPECTIVE AMENDMENT IN THE RELEVANT SALES TAX L AW AS A RESULT OF WHICH THE ASSESSEES LIABILITY WAS UPHELD BY THE COURTS. THE TAX (I.E., THE AMOUNT OF RUSUM) WAS REMITTED TO THE S TATE LATER ON AND CONSEQUENT UPON THE SAID AMENDMENT. THIS COURT HELD THAT IN SO FAR AS THE ASSESSMENT YEAR 1968-69 WAS CONCERNED TH E AMOUNTS COLLECTED IN THE NAME OF RUSUM CONSTITUTED BUSINE SS RECEIPTS OF THE ASSESSEE. 15. IN THE CASE AT HAND, THE AMOUNT ACCRUED TO THE AS SESSEE IN THE ORDINARY MANNER OF ITS BUSINESS ACTIVITIES. THE AMOUNT WAS RETAINED BY THE ASSESSEE AS TRADING RECEIPT. THOUG H LEARNED ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 19 COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUN T WAS RETAINED AS A LIABILITY, THAT WOULD ALSO NOT MAKE ANY DIFFER ENCE IN OUR OPINION. FIRSTLY, THE CONSISTENT VIEW OF VARIOUS CO URTS, AS NOTICED HEREINABOVE, IS THAT MERELY MAINTAINING AS LIABILIT Y UNDER A HEADING GIVEN BY THE ASSESSEE WOULD NOT ALTER THE N ATURE OF THE RECEIPT IF IT ACTUALLY BE A TRADING RECEIPT. SECOND LY, NOTHING IS AVAILABLE ON RECORD TO FIND OUT HOW AND IN WHAT MAN NER IT WAS MAINTAINED BY THE ASSESSEE. 16. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS BY DIFFERENT COURTS AND SUBMITTED THAT IN IDENTICAL FACTS AND CIRCUMSTANCES IT WAS HELD NOT TO BE A TRADING RECE IPT OF THE ASSESSEE AND HENCE NOT LIABLE TO TAX. WE HAVE CAR EFULLY PERUSED THE DECISIONS. IT IS CLEAR FROM THE FACTS STATED BY THE COURTS THAT IN EACH OF THE CASES THE ASSESSEES RIGHT TO REALISE T HE AMOUNT WAS THE SUBJECT-MATTER OF DISPUTE PENDING IN THE HIGH C OURT. THUS THE RECEIPT OF THE AMOUNT BY THE ASSESSEE WAS CLEARLY A SSOCIATED WITH A LIABILITY TO REFUND THE AMOUNT, WHICH LIABILITY W AS ASCERTAINABLE AND QUANTIFIED. SUCH IS NOT THE CASE AT HAND. WE H AVE ALSO GONE THROUGH THE JUDGMENT OF SUPREME COURT IN THE CASE OF CIT V. HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LTD. [ 1986] 161 ITR 524. THE FACTS OF THE CASE BEFORE THE SUPREME COURT WERE THAT CERTAIN LANDS BELONGING TO THE ASSESSEE-COMPANY WER E FIRST REQUISITIONED AND THEN COMPULSORILY ACQUIRED BY THE STATE GOVERNMENT. ON AN APPEAL PREFERRED BY THE RESPONDEN T-COMPANY, THE ARBITRATOR MADE AN AWARD DIRECTING COMPENSATION TO BE PAID FOR REQUISITION AND ACQUISITION. THE ARBITRATORS A WARD WAS PROMPTLY CHALLENGED BY THE STATE GOVERNMENT BEFORE THE HIGH COURT. PENDING THE APPEAL, THE STATE GOVERNMENT DE POSITED THE AMOUNT IN THE COURT WHICH THE ASSESSEE-COMPANY WAS PERMITTED TO WITHDRAW ON FURNISHING A SECURITY BOND FOR REFUN DING THE AMOUNT IN THE EVENT OF THE APPEAL PREFERRED BY THE STATE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 20 GOVERNMENT BEING DECIDED IN ITS FAVOUR. THIS COURT FOUND THAT THE ENTIRE AMOUNT WAS IN DISPUTE IN THE APPEAL FILED BY THE STATE GOVERNMENT; THAT THE DISPUTE WAS REAL AND SUBSTANT IAL; AND THAT THE AMOUNT DEPOSITED BY THE STATE GOVERNMENT WAS PE RMITTED TO BE WITHDRAWN BY THE ASSESSEE SUBJECT TO A SECURITY BOND FOR REFUNDING THE AMOUNT IN THE EVENT OF THE APPEAL BEI NG ALLOWED. ON THESE FACTS, SUPREME COURT HELD THAT THERE WAS NO A BSOLUTE RIGHT TO RECEIVE THE ENHANCED AMOUNT AT THAT STAGE AND IF THE APPEAL WAS ALLOWED AND IN ITS ENTIRETY, THE RIGHT TO PAYME NT OF ENHANCED AMOUNT WOULD HAVE FALLEN ALTOGETHER. THE PRINCIPLE OF LAW LAID DOWN BY THIS COURT IN THE CASE OF HINDUSTAN HOUSING AND LAND DEVELOPMENT TRUST LIMITED [1986] 161 ITR 524 IS TO BE READ IN THE LIGHT OF THE FACTS OF THAT CASE. THUS NONE OF THE D ECISIONS RELIED ON BY LEARNED SENIOR COUNSEL FOR THE ASSESSEE IS OF AN Y ASSISTANCE TO HIM. 17. IN OUR, OPINION, THE IMPUGNED TRANSACTION WILL HAVE TO BE BROUGHT TO TAX AS TRADING RECEIPT IN THIS ASSESSMEN T YEAR UNDER CONSIDERATION AND IF AND WHEN THE ASSESSEE PAYS THE SAID IMPUGNED AMOUNT BACK TO THE CONCERNED PARTY, IT WOU LD BE ENTITLED TO CLAIM DEDUCTION FOR THE ASSESSMENT YEAR DURING WHICH THE AMOUNT OUGHT HAVE BEEN PAID/ REFUNDED TO THE S AID PARTY. FOR THIS PROPOSITION, WE PLACE RELIANCE ON THE JUDG MENT ON THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KC P LTD. (216 ITR 602) (AP) & KCP LTD. VS. CIT (245 ITR 421)(SC) AN D CIT VS. M. SAROJINI DEVI (250 ITR 759) (AP) 18. ACCORDINGLY, WE HOLD THAT THE ENTIRE SURPLUS FROM T HIS TRANSACTION SHOULD BE CONSIDERED AS A WHOLE AND NOT OF PIECEMEAL BUSINESS. THIS GROUND OF THE ASSESSEE IS REJECTED. 19. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF EX PENDITURE AT RS. 85,30,257. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 21 20. BRIEF FACTS OF THE ISSUE ARE THAT THE ADDITION OF R S. 85,30,257 ON ACCOUNT OF INDIRECT EXPENSES ADDED TO THE WORK-I N-PROGRESS OF THE PROJECTS UNDER CONSTRUCTION. THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE COMPANY WAS CONSTRUCTING A COMMER CIAL COMPLEX IN HIMAYATHNAGAR, A 5 STAR HOTEL IN BANJARA HILLS AS WELL AS ANOTHER HOTEL IN ABIDS, HYDERABAD. THE ASSESSEE -COMPANY CLASSIFIED THE CONSTRUCTION EXPENDITURE AND RELATED INTEREST ON THESE PROJECTS AS CAPITAL WORK-IN-PROGRESS. IT WAS FURTHER NOTICED THAT THE TOTAL EXPENDITURE OF THE COMPANY WITH RESP ECT TO THE PROJECTS, CONTRACTS AND RUNNING OF A RESTAURANT WAS RS. 7.6 CRORES APPROXIMATELY. THE EXPENDITURE IN RESPECT OF CONTR ACT WORKS AND RESTAURANT WAS RS. 1.15 CRORES. THEREFORE, THE ASS ESSING OFFICER OBSERVED THAT 84% OF THE WORK OF THE COMPANY DURING THE YEAR RELATED TO THE PROJECTS UNDER CONSTRUCTION. HOWEVE R, THE ASSESSEE- COMPANY HAD NOT ALLOCATED ANY INDIRECT EXPENDITURE OTHER THAN INTEREST TO THE PROJECTS UNDER CONSTRUCTION EVEN TH OUGH THESE ACCOUNTED FOR 84% OF THE ASSESSEE'S BUSINESS. THIS RESULTED IN ARTIFICIALLY DECREASING THE PROFITS. ACCORDINGLY, PLACING RELIANCE ON THE DECISION OF THE APEX COURT IN THE CASE OF CIT V S. BRITISH PAINTS INDIA LTD. 188 ITR 44, THE ASSESSING OFFICER MADE A PRO-RATA ALLOCATION OF INDIRECT EXPENDITURE ADDING RS. 85,30 ,257 TO THE TOTAL INCOME OF THE ASSESSEE. 21. THE LEARNED AR SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE INCURRED UNDER SCHEDULES - J, K & E TO THE EXTENT OF 84% AT RS. 85,30,257 ON THE PLEA THAT IT RELATES TO THE WORK IN PROGRESS AND DISALLOWED THE SAME AS REVENUE EXPENDITURE. ACCORDING TO THE ASSESSEE, NO PART OF THE EXPENDITU RE CALLS FOR DISALLOWANCE AND WHATEVER AMOUNT HAS TO BE TRANSFER RED TO WORK IN PROGRESS HAS BEEN TRANSFERRED IN THE BOOKS. DET AILED ARGUMENTS AGAINST THE DISALLOWANCE ARE FILED BY THE ASSESSEE ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 22 BEFORE THE CIT(A). THE SUBMISSIONS IN BRIEF ARE TH AT THE ASSESSING OFFICER ERRONEOUSLY PRESUMED THAT THE HOTEL CITY PA RK, CHIRAG ALI LANE, ABIDS, HYDERABAD IS ALSO UNDER CONSTRUCTION. THE 84% ADOPTED FOR DISALLOWANCE IS ERRONEOUS. THE ENTIRE EXPENDITURE UNDER SCHEDULE J, K & E ARE ALL EXPENSES ARE INCURRED IN RESPECT OF REVENUE ITEMS. THE ALLOCATION OF EXPENSES TO VAR IOUS REVENUE HEADS DEPENDING ON ITS NATURE AND RELEVANCE IS SHOW N IN A TABULAR FORM FILED BEFORE THE CIT(A). THE BRIEF SUBMISSION S OF THE ASSESSEE ON THE DISALLOWANCE OF EXPENSES ARE MADE BEFORE THE CIT(A) AND THE SAME ARE ONCE AGAIN REITERATED. THE LEARNED COM MISSIONER OF INCOME TAX HAS REFERRED TO THE INITIAL SUBMISSIONS MADE, BUT DID NOT VERIFY THE DETAILED SUBMISSIONS FILED BEFORE HI M IN SUPPORT OF THE ASSESSEE'S PLEA THAT THE DISALLOWANCE OF THE AB OVE EXPENDITURE IS ERRONEOUS. THE CIT(A) WITHOUT GOING INTO THE FUL L FACTUAL POSITION HAS ERRONEOUSLY CONFIRMED THE DISALLOWANCE 22. THE DR SUBMITTED THAT WHAT IS IMPORTANT IS THAT THE METHOD OF ACCOUNTING SHOULD CONSISTENTLY PROVIDE ACCURATE REPORTING OF THE FINANCIAL POSITION AND THE FINANCIAL TRANSACTIONS O F ANY ENTITY. IT IS TRUE THAT CONSISTENCY IN METHOD OF ACCOUNTING IS IM PORTANT. HOWEVER, THE SAME CANNOT OVERRIDE ACCURACY AND THE BASIC PRINCIPLES OF DOUBLE ENTRY ACCOUNTING. IN OTHER WO RDS, IF INDIRECT COST IS RELATABLE TO A PROJECT UNDER CONSTRUCTION, IT CANNOT ARTIFICIALLY BE ALLOCATED TO THE RUNNING OF A RESTA URANT. THE ISSUE IS NOT WHETHER PROFIT WOULD BE REDUCED OR INCREASED IN A PARTICULAR YEAR. RATHER THE FUNDAMENTAL PRINCIPLES OF ACCOUNT ANCY MUST BE FOLLOWED SO AS TO REFLECT ACCURATE PROFITS. JUST B ECAUSE THE ASSESSEE HAD CONSISTENTLY BEING ALLOCATING INDIRECT COST RELATING TO ITS CONSTRUCTION PROJECT TO ITS RESTAURANT BUSINESS , IT DOES NOT IMPLY THAT THE MISTAKE HAS TO BE PERPETUATED. MORE OVER, THE ONUS LIES SQUARELY ON THE ASSESSEE TO SHOW THAT A PARTIC ULAR INDIRECT COST PERTAINS TO ITS RUNNING BUSINESS AND NOT TO IT S CONSTRUCTION ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 23 PROJECT. DURING APPEAL PROCEEDINGS THE ASSESSEE DI D NOT PRESENT ANY EVIDENCE REGARDING THE SAME. IT IS AGAINST HUM AN PROBABILITY THAT OUT OF RS. 41.84 LAKHS OF ADMINISTRATIVE AND G ENERAL EXPENSES, SALARIES TO STAFF OF RS. 42.32 LAKHS ETC. , NOT A SINGLE PENNY RELATED TO THE CONSTRUCTION PROJECT AND THE E NTIRE EXPENDITURE RELATED TO THE RESTAURANT AND RUNNING B USINESS. 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE N OT PROPERLY ALLOCATED THE INDIRECT EXPENDITURE OTHER THAN INTER EST TO THE PROJECT UNDER CONSIDERATION. THE ASSESSEE CONSIDERED THE I NDIRECT EXPENSES AS A BUSINESS EXPENDITURE AND CLAIMED AS D EDUCTION INSTEAD OF APPORTIONING THE SAME TO THE COST OF THE PROJECTS I.E., CONSTRUCTION OF COMMERCIAL COMPLEX IN HIMAYATHNAGAR AS WELL AS A HOTEL IN ABIDS, HYDERABAD. THE LEARNED AR MADE CON TENTION BEFORE US THAT THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE SAME METHOD OF ACCOUNTING AND WHATEVER THE EXPENDITURE I NCURRED IN PROJECT IMPLEMENTATION HAS BEEN CAPITALISED. BUT T HE FACTS ARE THAT THE ADMINISTRATIVE AND GENERAL EXPENSES, SALAR Y TO STAFF INCLUDING DIRECTOR AND DEPRECIATION WHICH IS INCLUS IVE OF DEPRECIATION ON HOTEL BUILDING AND HOTEL PLANT AND MACHINERY ARE NOT ALLOCATED TO THE PROJECTS WHICH ARE UNDER CONST RUCTION. BEING SO, IT GIVES DISTORTED PICTURE OF THE TRUE PROFIT A ND LOSS OF THE ASSESSEE COMPANY. NON ALLOCATION OF THE INDIRECT EXPENSES TO THE WORK-IN-PROGRESS TRULY AFFECTS CORRECT REFLECTION O F THE PROFIT AND LOSS OF THE ASSESSEE-COMPANY. BEING SO, IN OUR OPI NION, THE ASSESSING OFFICER IS JUSTIFIED IN REALLOCATING THE INDIRECT EXPENSES CLAIMED BY THE TO THE CAPITAL PROJECT OF THE ASSESS EE. THIS GROUND IS DISMISSED. 24. THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF DE PRECIATION OF CENTRING MATERIAL. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 24 25. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFF ICER STATED THAT THE MATERIAL WAS USED IN THE PROJECTS UNDER CO NSTRUCTION AS SUCH WAS TO BE CONSIDERED UNDER WORK-IN-PROGRESS. DURING APPEAL PROCEEDINGS, THE ASSESSEE STATED THAT THE CENTRING MATERIAL WAS USED BOTH FOR CARRYING CONTRACT WORK AND FOR PROJEC T UNDER IMPLEMENTATION. HOWEVER, NO EVIDENCE WAS PROVIDED REGARDING ITS CLAIM. IN THE ABSENCE OF ANY EVIDENCE OF DETAILS R EGARDING THE CENTRING MATERIAL, THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER WAS CONFIRMED BY THE CIT(A). 26. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT OF DEPRECIATION DISALLOWED IS RS. 3,72,074. THE CENTRING MATERIAL IS USED FOR CONSTRUCTION OF HOTEL CITY PAR K AND ALSO FOR CONTRACT WORKS WHOSE INCOME IS TAXED AS REVENUE INC OME. THE CENTRING MATERIAL IS USED FOR SUNDRY ITEMS OF REPAI RS AND NON CAPITAL WORKS. IT IS NOT KNOWN WHAT PROOF A PERSON CAN ADDUCE FOR THE USER OF CENTRING MATERIAL. THE USER OF CENTRING MATERIAL FOR REPAIRS, PAINTING AND MAINTENANCE WORKS ETC., IS TO O WELL KNOWN. THE OBJECTIONS OF THE CIT(A) ARE LIKE ASKING FOR PR OOF TO ESTABLISH THAT THE DAY IS BRIGHT AND THE NIGHT IS DARK. THE B ASIS ON WHICH THE DEPRECIATION IS DISALLOWED IS LEGALLY UNSUSTAIN ABLE. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE CLAIMED ALL THIS DEPRECIATION IS RELATING TO THE PROJECT UNDER CONSTRUCTION. THE PROJECT UNDER CONSTRUCTION BEING THE CAPITAL ASSET, DEPRECIATION CANNOT BE ALL OWED. THIS GROUND IS REJECTED. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS ALLOWED. 29. THE STAY PETITION FILED BY THE ASSESSEE IS DISMISSE D AS INFRUCTUOUS AS THE ASSESSEE APPEAL IS DISMISSED BY US ON MERIT. ITA NOS. 985 &1030 /HYD/2010 S.A. NO. 06/HYD/2012 M/S. MAHESWARI MEGA VENTURES LTD. ============================= 25 ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 30 TH APRIL, 2012 COPY FORWARDED TO: 1. M/S. MAHESWARI MEGA VENTURES LTD., MPM MALL, ABI DS CROSS ROAD, HYDERABAD. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-16 (2), HYDERABAD. 3. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-16( 2), HYDERABAD. 4. THE CIT(A)-V, HYDERABAD 5. THE CIT-IV, HYDERABAD. 6. THE DR A BENCH, ITAT, HYDERABAD. TPRAO