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TMI Blog2014 (9) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 8.5 crores - There is nothing on record to show as to how the same was quantified, who committed the breach and as to whether any claim was made by Bhupathi in this regard. Mr. Mahesh Bhupathi agreed that his property would be sold in favour of the nominees of the Second Party - the agreement cannot be said to be a compensation agreement entered into for breach of the agreement dated 25.9.2004 - in none of the registered documents by which the property of SRLPL was conveyed, is there a reference to the agreement between the assessee and Bhupathi - the conclusion of the revenue authorities that the payment of ₹ 8.5 crores has no nexus with NLI property is correct and therefore has to be upheld - the plea of commercial expediency in making the payment to Mr. Mahesh Bhupathi for NLI property cannot also be accepted – the order of the CIT(A) is upheld – Decided against Assessee. - ITA Nos. 804 & 805/Bang/2013 - - - Dated:- 28-8-2014 - Shri N. V. Vasudevan And Shri Jason P. Boaz,JJ. For the Appellant : Shri V. Srinivasan, C.A. For the Respondent : Shri Farahat Hussain Qureshi, CIT-II(DR) ORDER Per N. V. Vasudevan, Judicial Member These are ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litated the transfer of the property of SRLPL. On the very same day i.e., 1-4-2006, ITC Limited entered into a construction agreement with the Assessee whereby the Assessee was entrusted with the job of constructing 3,32,467 Sq.ft. of super built up area over the property of SRLPL as per the terms and conditions and specifications of building as set out in the said agreement. The construction project of the super built up area over the property of SRLPL was named as NITESH LONG ISLAND ( NLI ). 8. The Assessee offered income from the project NLI by following the percentage of completion method of accounting (POC). Under the POC method, recognition of revenue is based on the Percentage of Completion (POC). The other method followed by real estate developers is completed contract method. Companies following the POC method determine the stage of completion at every reporting period and recognize project revenue and costs based on that. As against that, companies that follow the completed contract method generally accumulate project costs as work in progress in their balance sheet and recognize project revenue and profits only when the construction is complete and possession is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the project between the Assessee and ITC Limited. The same reads thus: C. The parties have been approached by ITC Limited ( ITC ) for participation in a project involving the development of land and construction of a residential complex for their use. The Schedule Property being insufficient, ITC has identified certain other immovable property adjacent to the Schedule Property, for developing and constructing thereon a multistoried residential complex. ( Project ). 13. By another supplementary agreement dated 16.10.2008, the compensation payable by the Assessee was reduced to ₹ 6.70 Crores instead of ₹ 8.5 Crores. 14. It was the plea of the Assessee before the AO in the assessment proceeding for AY 07-08 that the sum of ₹ 8.5 crores should be considered as expenditure for the project NLI as the property of Bhupathi was originally identified for construction of building for ITC and because ITC felt the area was less, the property of SRLPL was identified and therefore the compensation paid to Mr.Mahesh Bhupathi has nexus with the project NIL and had to be considered as expenditure for the said project. 15. The AO while completing the assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered as an expenditure of the project NLI by the AO in AY 07-08. However in AY 08-09 09-10, the AO took a stand that the compensation paid to Mr. Mahesh Bhupathi has nothing to do with the project NLI and therefore the said payment cannot be regarded as expenditure of the project NLI. The following was the claim made by the Assessee for deduction in AY 08-09:- As per the return of income Total compensation payable 85000000 POC 64.20% Gross amount recognised as expenditure for the AY 2008-09 54566339 Amount already charged to P/L account in the AY 2007-08 9696744 Net amount charged to P/L account in the AY 2008-09 44869595 The justification of the Assessee for claiming deduction of the aforesaid sum before the AO was explained in a note which reads thus: M/s. Nitesh Estates Private Limited entered into development agreement with Mr. Mahesh Bhupathi for development of property at Jakkur at Sy. No: 1B Block Nos: 30,31 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract from to ITC Ltd as claimed in the note. The AO also held that if the compensation of ₹ 85000000 payable to Mr. Mahesh Bhupathi was in lieu of cancellation of JDA and enable transfer of property of SRLPL then the same should have been clearly specified in the compensation agreement. Instead the agreement only requires Mr. Mahesh Bhupathi to transfer the property to the nominees of the Assessee. The relevant clause in the agreement read as below, 3.3 The First Party (Mr. Mahesh Bhupathi) shall transfer and convey the schedule property in favour of the nominees of the Second Party (NEPL) within such time and in such manner as may be stipulated by the Second Party in writing 18. The AO also found that the land owned SRLPL was transferred to ITC ltd on 1.4.2006 i.e. within a year of signing the compensation agreement. If the claim of the Assessee as per the note submitted were to be correct, then the event of transfer of land from Mr. Mahesh Bhupathi to SRLPL ought to have necessarily preceded the event of transfer of land from SRLPL to ITC ltd. The AO also called upon the Assessee to explain the status of the land belonging to Mr.Mahesh Bhupathi and produce necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RLPL and therefore no adverse inference can be drawn in this regard. 23. The CIT(Appeals), however, was of the view that the property of Bhupathi had nothing to do with NLI property and that the claim of the assessee regarding nexus between the property of Bhupathi and NLI property is not found anywhere in the various agreements between the parties. The claim of the assessee was therefore held by the CIT(A) to be baseless. The CIT(A) also found that there was nothing to show that Mr. RVD was representative of SRLPL in the matter of purchase of property of Bhupathi. The CIT(A) held that business expediency of the transaction for payment of compensation is also not properly explained. The CIT(A) held that there was nothing to show that payments made to Bhupathi had resulted in any business advantage to the assessee, but was only to reduce the income from NLI property. For all these reasons, the CIT(A) confirmed the order of the AO. 24. Aggrieved by the order of the CIT(Appeals), the assessee has preferred the present appeals before the Tribunal. 25. The ld. counsel for the assessee reiterated the submissions as were made before the AO. According to him, the recitals in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, it needs to be emphasized that the property of Bhupathi and the property of SRLPL are at different places. As already stated, a copy of the plan showing allocation of both the properties is annexed to this order. It is also a fact that the agreement for purchase of property of Bhupathi and the purchase of property of SRLPL were entered into at different points of time. None of the documents between the parties, except a casual reference in the compensation agreement dated 14.7.2005, speak about the nexus between the property of Bhupathi and the NLI property. Even in the compensation agreement dated 14.7.2005, there is a reference to the property of Bhupathi having been considered for development of residential complex by ITC, but since the place was small, the same was given up. This recital in the compensation agreement dated 14.7.2005, in our view, also does not show any nexus between the property of Bhupathi and the NLI property. No evidence has been brought on record by the assessee to show that the property of Bhupathi was first identified by ITC for development of residential complex. In this regard, these facts have not even been confirmed by ITC. There is nothing on rec ..... 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