2014 (8) TMI 1253 - AT - Income Tax

Addition on account of sale consideration - sale of one SRA project - as argued MOU itself is not genuine because it has been challenged before the arbitrator -as mentioned that the sale agreement was fraudulently executed and similarly the Deed of dissolution was also fraudulently obtained - HELD THAT - Assuming for the sake of argument that the MOU is not a void document, it relates to the sale of SRA project. In our understanding of municipal laws, around 29 to 30 permissions/No Objection Certificates are required before the commencement of the project from the State Government/local authorities. There is not even a single evidence which could show that the local authorities have granted/sanctioned permission to the assessee. The entire assessment has been made only on the basis of this MOU which firstly is a invalid document and secondly it does not give any clue in respect of the commencement of the SRA project. There is no other cogent material evidence brought on record to show that the assessee has actually received the consideration nor any such document was found during the course of the search proceedings. The entire addition is made on the basis of assumptions/presumptions, such addition cannot be sustained. We, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. Taxation of income shown by the partner who has taken over the business of the assessee firm - There is no cogent material evidence on record to show that the assessee has taken permission from various local authorities in respect of the said project, even the payment schedule in the agreement show that Rs. 50 lakhs only has been received on 5.4.2007. As mentioned hereinabove, the firm was dissolved on 14.5.2007 and the entire business was taken over by one of the partners. We fail to understand how the entire consideration has been taxed in the hands of the assessee when the business has been taken over by one of the partners. Only Rs. 50 lakhs has been received on 5.4.2007 i.e. before the date of dissolution, only to this extent, the assessee can be made liable to pay the tax and that too when this amount has not been shown as income subsequently by the partner who has taken over the business of the dissolved firm. We restore this issue to the files of the AO for the limited purpose of verification of Rs. 50 lakhs, whether this income has been shown by the partner who has taken over the business of the assessee firm and if it is taxed in the hands of the partner, then the same cannot be taxed in the hands of the firm. In respect of the balance addition we do not find any evidence to justify this addition which is accordingly deleted.

Summary

Issues:
Addition of Rs. 20 crores on account of sale consideration for assessment year 2007-08.
Addition of Rs. 6,73,45,900/- for assessment year 2008-09.

Analysis:
*Assessment Year 2007-08:*
The assessee contested the addition of Rs. 20 crores based on a MOU found during a search operation. The AO relied on the MOU, but the assessee claimed it was fraudulent. The CIT(A) upheld the addition. However, the ITAT found the MOU invalid as it was between a partnership firm and a non-existing entity. It also noted the lack of evidence for project commencement. The addition was deemed unsustainable due to baseless presumptions.

*Assessment Year 2008-09:*
The AO added Rs. 6,73,45,900/- based on another MOU. The CIT(A) upheld the addition, stating the income accrued as per the accrual system. The ITAT observed the dissolution of the firm and transfer of assets to a partner. It noted insufficient evidence of project development and payments received. The ITAT directed AO to verify Rs. 50 lakhs received before dissolution and deleted the rest of the addition. The decision was made in favor of the assessee.

In conclusion, the ITAT allowed the appeal for assessment year 2007-08 and partially allowed the appeal for assessment year 2008-09 for statistical purposes.