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TMI Blog2015 (11) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 20.47 lakhs on account of rent receivable from let out property ignoring the specific provisions of section 23(b) of IT Act which provide that annual value shall be deemed to be rent received or receivable by the owner from such let out property. 4. That the grounds of appeal are without prejudice to each other." 2. The facts relating to the issue in dispute are that the assessee filed its return of income declaring total income of Rs. 65,14,514/- on 29.09.2009. The case of the assessee was selected for scrutiny through CASS. The Assessing Officer issued notice u/s. 143(2) of the IT Act, 1961 (hereinafter called the 'Act') on 22.08.2010. A detailed questionnaire along with notice u/s. 142(1) was also issued on 06.07.2011. In compliance to the same, the AR of the assessee appeared and filed necessary details, information/documents etc. as required. The books of accounts were produced and examined on test check basis. The assessee is engaged in the business of Real Estate, i.e., purchasing of land and selling it after Development. During the F.Y. 2008-09, the assessee has shown Income under House Property and Income from Business & Profession. The assessee has debited profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 of the impugned order. For the sake of convenience, the same is reproduced as under : "I have carefully considered the facts and circumstances of the case and submissions and details filed during the course of appeal proceedings. The only issue for consideration and adjudication IS genuineness of claim of loss on forfeiture of advance paid to Sh. D.D. Goel. The Assessing Officer considered the disallowance of forfeiture of advance as a sham and collusive transaction between father and sons through instrument of partnership. As per various reasons narrated by the Assessing Officer and extracted above, the transaction between father and son was not based on business consideration and same was only to obtain benefit of loss so as to adversely affect the interest of revenue. It was further observed that the above said agreement was not registered and as such the bonafide of the agreement is itself in doubt. Further, as per the Assessing Officer, the assessee's is main area of activity was in Bangalore and project at Sonipat, Haryana was not practical or feasible and in fact assessee itself has never been serious and no approval was obtained for undertaking the said project. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooking/ sale amount will be collected through the developer and the proceeds will be distributed in the above ratio." As per clause 15 of the said agreement in case developer defaults on any terms & conditions of this agreement, the 'Associate' shall have right to forfeit the deposit at his discretion. "15. That the "Developer shall obtain necessary permission/license from the concerned authorities and start the development work with in 24 months from this agreement, incase developer defaults on any terms & conditions of this agreement, the 'Associate' shall have right to forfeit the deposit at his discretion. " Development Agreement with Sh. Sumit Goel "This agreement is made on this 17th day of April, 2006 by and between: - Mr. Sumit Goel S/o Sh. D.D. Goel resident of N-6 Greater Kailash-I, New Delhi-110048 (hereinafter called the First Party and also referred to as "Associate", which expression shall, unless it be repugnant to the subject or context thereof, include its assigns, legal representatives, successors and administrators etc.) of the First Part; And M/ s DKG Company having its registered office at HS-38 Kailash Colony, New Delhi-ll0048, through its Partner Sh. Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of payment of advance and business intention of the parties. In fact, it is only during assessment year 2009-10, when the forfeiture took place, the Assessing Officer raised doubt about genuineness of the agreement because of claim of loss on account of forfeiture of the advance paid. It is not the case of the Assessing Officer that there was no forfeiture clause in the said agreement or that conditions of forfeiture were not applicable. It will be worthwhile to quote the relevant portion of correspondence between) the appellant firm and Sh. D.D. Goel in respect of forfeiture. Letter written by DKG Company to Sh. D.D Goel dated 24.06.2008 "In reference to your letter dated 12.06.2008, explaining your intention to forfeit the advance amount in terms of development agreement dated 15.06.2006. In this regard, we may invite your kind attention to our earlier letter wherein the company had explained tits difficulties being faced fro start of the project and make the balance payment as per the agreement. As you are aware due to certain conditions we have not been able to take up the project till date, we kindly request you to extend the period of two years by another two years. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so undertaken housing project in Sonipat for their political and business interest, the assessee was not in a position to compete with them or to acquire the land at arbitrary price and as a prudent businessman and on account of business and commercial consideration, there was no possibility of any further progress in the light of requirement of minimum holding of land to the extent of 100 acres. However, the assessee was able to recover the advances paid to farmers as it was in their own interest as they were offered higher price by Jindal Group. However, Sh. D.D. Goel was not in a position to enter into similar development agreement with Jindal Group as they wanted outright purchase of land and not to enter into any business development agreement with Sh. D.D. Goel and as such there was no such agreement between Sh. D.D. Goel and Jindal Group and as a consequence of which, Sh. 0.0. Goel enforced the forfeiture clauses after detailed correspondence with the firm. In the circumstances, the assessee had no option but to accept the forfeiture of advance after taking necessary legal advice. The objection of the Assessing Officer that agreement -was between related parties and as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by judicial authorities. Further, appellant has. clarified each every issue raised by the Assessing Officer. In the light of facts of the case and submission of the appellant, I am of the view that agreement between the appellant firm and Sh. D.D. Goel is genuine, for the purpose of their business interest. The facts and terms of the agreement is also supported from audited accounts of preceding years which are part of record. If there was a case of forfeiture of advance on the basis of business and commercial consideration and after proper legal advice, the Assessing Officer has to consider and allow the said loss, if the same is otherwise permissible under the provisions of Income Tax Act, 1961. In this connection, it is appropriate to make reference to latest decision of Delhi High Court in the case of CIT Vs. Micromatic Machine Tools (p.) Ltd. 192 Taxman 161 (DELHI) Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1998-99 - Whether an obligation incurred, while entering into a commercial contract, has to be taken as a business expenditure within meaning of section 37(1) unless it is shown that contract itself was a sham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forfeiture amount is to be considered as capital or revenue receipt in the case of Sh. 0.0. Goel, same could have no bearing to the 'case of the appellant as the appellant being in the business of real estate and loss being incidental to business activities, same is to be considered as of revenue nature and permissible deduction under the law. The observation of the Assessing Officer that the main areas of activity of the assessee being in or around Bangalore, the project at Sonipat was not possible and as such there was no business justification for the said project is uncalled for as the appellant being in the business of development of real estate, it was open to the assessee to undertake the project at any place as may be decided by the appellant and it is not for the Assessing Officer to decide as to how the business is to be carried on. The observation of the Delhi High Court in the case of Dalmia Cement Ltd. 254 ITR 377 is relevant and appropriate. The observation of the Assessing Officer that there was no forfeiture clause in the case of other agreements with the farmers and as such various agreements were executed with different purposes and motivated by the claim of los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s such the allegation of the Assessing Officer is not based on correct appreciation of facts. It may be mentioned that as per agreements with farmers placed in the paper book page 101-115, there was specific clause about the forfeiture and as such all these agreements were on identical basis and for the purpose of execution of project at Sonipat. However, in the light of business interest, the issue of forfeiture with farmers was not enforced. Regarding the allegation that the inspector of the department personally visited the Village at Haryana and reported that farmers were not aware of the project of the appellant and they also expressed their ignorance for any such project or , any sale of land for the said project. However, whether Assessing Officer provided the said report to the assessee or carried out further investigation is not born out from the assessment order. Further, various agreements with the farmers were part of record and whether I, the report of the inspector is in the context of those agreements or report was of a general nature has never been brought out on record. It is for the Assessing Officer to verify whether these are forged documents and in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2005-06 - Assessee-company was engaged in business of manufacture of electrical products - It had its head office at Delhi and manufacturing units at various places in India - It set up a new unit at Haridwar for purpose of manufacture of electric fans - During previous year, assessee incurred certain expenditure at its Haridwar unit and claimed deduction of same as revenue expenditure on ground that it had incurred said expenditure for purpose of expansion of its existing business activities - Lower authorities treated expenditure in question as capital expenditure and disallowed same - Whether since documents furnished by assessee clearly showed that there was complete interlacing and intermixing of funds of assessee in all its units, lower authorities were wrong in treating expenditure in question as capital expenditure - Held, yes. CIT Vs. Ghanashyam Steel Work Ltd. 195 TAXMAN 180 (GUJ.) Section 37(1), read with section 36(I)(iii), of the Income-tax Act, 1961 - Business expenditure - Allow ability of - Assessment years 1996-97 to 1998-99 - Assessee was engaged in business of manufacture of chemical processing equipment - During relevant assessment years, it had started ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1.25 crores on account of advance received by the assessee, the learned first appellate authority has adjudicated this issue at page 38 to 42 of the impugned order. For the sake of convenience that is reproduced as under : "I have gone through the assessment order and written submissions of the appellant. The Assessing Officer made an addition of Rs. 1,25,00,000/- as income from undisclosed sources in respect of advance received from various parties against future projects. The particulars of advances have been given in the assessment order and extracted hereunder : i) M/s. Aggarwal Sales Corporation Rs.20,00,000/- ii) Ms. Payal Goel Rs.30,00,000/- iii) M/s. Bindal Footwear Pvt. Ltd. Rs.50,00,000/- iv) Sh. Mukesh Kumar Rs.10,00,000/- v) M/s. Saraswati Trading Co. Rs.15,00,000/- The Assessing Officer analyzed the confirmation furnished by the Assessing Officer and addition was made on the ground that creditworthiness of these parties were not established. The appellant has made detailed submission in respect of the above said issue which is reproduced hereunder: There is no dispute that payments from all the parties were received through account p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table projects. Further, the Assessing Officer has not brought on record any evidence or material that these advances represent income from undisclosed sources and entire addition is without proper appreciation of facts and relevant legal principles. It is submitted that appellant has placed on record full and complete details in respect of identity, genuineness and source and as such have fully discharged the onus in the context of provisions of sec. 68 . In this connection, reliance is placed on following case laws: 1. Commissioner of Income Tax, Orissa Vs. Orissa Corporation Pvt.Ltd. Page 159, ITR 78 Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessee. Their index numbers were in the file of the Revenue. The revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so- called alleged creditors. In those circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und of capacity and source of such advance. Further, these advances have subsequently been refunded through account paid cheques in the absence of development of any mutually acceptable project. I have carefully considered the various case laws referred to by the appellant in their written submission and I am in agreement with the principles laid down in those judgments. The principle laid by Supreme Court in the case of Orissa Corporation Pvt. Ltd. & Delhi High Court in the case of Diamond Products Ltd. is clearly applicable to the fact of this case. In case, the AO is not satisfied about source of such advance, the AO may forward the information to the concerned AO for appropriate action. However, there is no legal justification for any addition in the case of the appellant particularly when AO has not recorded any finding about any undisclosed income, which is represented by these advances. In the light of above discussion, the impugned addition is not sustainable and same is hereby deleted. Appeal on this ground is allowed." 6. Similarly, after going through the impugned order, we find that the learned First Appellate Authority has dealt with the third issue regarding deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid rent. The Assessing Officer has not disputed the fact that the rent was not paid after 6 months and legal proceedings were pending in the court during the relevant period. However, the Assessing Officer has only observed that the assessee should have adjusted the rent against security deposit and accordingly made the impugned addition in respect of unpaid rent on the basis of security deposit with the assessee. The action of the Assessing Officer is uncalled for in the context of fact that there was no receipt of rent for the period of 6 months and legal dispute was before the court of civil judge and as such the assessee could not have adjusted rent against the security deposit in the absence of proper settlement of dispute between the parties or direction of the court. In fact, regarding recovery of rent, the issue is still subjudice and as such there was no case for any addition on hypothetical and notional basis. A reference to provisions of sec. 23 of the Income Tax Act, 1961 regarding determination of annual rent, as per the provisions of sec. 23, only actual rent received or receivable is required to be considered for the purpose of assessment. However, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenses were incurred for the purpose of manufacturing of sugar in respective factories with a view to earn profit and, therefore, the assessee was entitled to deduction of the said expenses as Revenue Expenditure. After going through the impugned order, we find that the learned First Appellate Authority has deleted the addition in dispute by respectfully following various decisions rendered by the Hon'ble High Courts which are mentioned in the impugned order. We find no infirmity in the impugned order on the deletion of addition of Rs. 5.85 crores made by the Assessing Officer. Therefore, we decide the issue involved in ground No. 1 against the Revenue and in favour of the assessee by upholding the impugned order on this ground. 8. As regards to the deletion of addition of Rs. 1.25 crores on account of advances received by the assessee, after going through the impugned order, as well as the Assessing Officer, we are of the view that the learned First Appellate Authority has elaborately discussed the issue at pages 38 to 42 of the impugned order. The learned First appellate Authority has given various details of various parties mentioned in the impugned order. The learned First ..... X X X X Extracts X X X X X X X X Extracts X X X X
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