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TMI Blog2016 (10) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... nding of the nature of the transaction by treating it as capital receipt. It is clear that the assessee has carried out the expenditure towards the performance of the development agreement. - Therefore CIT(A) directed the AO to treat ₹ 50,00,000/- as contractual receipt. - order of CIT(A) is not erroneous. Decided against the revenue. - ITA No.2321/Mum/2015 - - - Dated:- 29-8-2016 - Shri Joginder Singh, Judicial Member For The Revenue : Ms. Mahua Sarkar -DR For The Assessee : None ORDER The Revenue is aggrieved by the impugned order dated 27/01/2015 of the Ld. First Appellate Authority, Mumbai. The first ground raised pertains to allowing relief of ₹ 3,61,356/- u/s 36(1)(iii) of the Income Tax Act, 1961 (hereinafter the Act). 2. During hearing, the ld. DR, Ms. Mahua Sarkar, contended that the relief was granted to the assessee without appreciating the fact that no evidence for investment in AOP was filed and thus no income or loss was shown from AOP. It was also pleaded that interest bearing funds were diverted as advances to the sister concern, friends and family members without any business expediency and that too without charging any int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2007 was ₹ 2,46,80,000/- and the dosing balance as on 31/03/2008 was ₹ 1,52,00,428/- The said fact crystalises that , we have not made any new investment in the current year. On the contrary we have made withdrawal from the capital in M/s Kings Empire Developers, as our closing capital is reduced to ₹ 1,52,00,428/- from the opening capital of ₹ 2,46,80,000/-. The further crystalises that , since there is no new investment , there is no source for the same in the current year and hence the details called for are not applicable to us . The AO has, however , not accepted the explanation accorded by the assessee since the assessee has apparently not filed any documentary evidence and also it is not explained as to why interest bearing funds have been diverted to interest free loans and advances to other concerns such as Kings Builders Developers, Hitesh B. Mehta and Nazma Gulab Shaikh. Therefore, the AO has worked out the disallowance u/s 36(1)(iii) as under Total loan fund as on 1.4.2007 Rs. 2,82,83,306 Total loan as on 31.3.2008 Rs.2,32,51,728 Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of opening and closing balances of the loans and advances and interest expenditure debited to prof it and loss account . The Assessee had submitted the fund flow statement vide letter dtd. 27/08/2013. 7. Without prejudice to the above the main content ion that the capital introduce in the AOP was out of own funds and it was in normal course of business activity, the assessee alternatively further submits that for the purpose of calculation of any disallowance, the opening balance pertaining to earlier years cannot be made available for advances during the year. Further the assessee has earned share of profit from AOP of ₹ 69,862/- (Pg. 6). The AOP is an independent assessee the assessee has a JV with Kings Empire Developer for development of Kurla Project. The ledger A/c of Kings Empire Developers is enclosed. CIT v. R L Kalthia Engineering Automobiles (P.) Ltd. 7[2013] 215' Taxman 9 (Gujarat)(MAG.) Interest paid on borrowed fund on ground that assessee had diverted interest bearing funds for purpose of investment in shares and loans to sister concern, since sufficient interest free funds were available with assessee, disallowance of interest ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is found that the investment or granting loans is contrary to the provisions of the Act. Therefore, I find no merit in the ground raised by the Revenue, consequently, the stand taken by the Ld. Commissioner of Income Tax (Appeal) is affirmed. 3. The next ground raised by the Revenue pertains to the direction to the Assessing Officer to treat ₹ 50 lakh, compensation received by the assessee for cancellation of development agreement, as contractual receipt instead of chargeable as short term capital gain, held by the Assessing Officer. 3.1. The crux of argument advanced Ms. Sarkar, is identical to the ground raised. I have considered the submissions of the ld. DR and perused Before adverting further, I am reproducing hereunder the relevant finding of the Ld. Commissioner of Income Tax (Appeal) for ready reference and analysis:- During the course of assessment, the AO noticed that the assessee had furnished a copy of deed of cancellation between Chandralok Fabrics and the assessee which shows that the assessee is a developer and Chandalok Fabrics are the owners of land bearing CTS No.176 admeasuring 1677.27 sq.mts. of Village Pahadi, Taluka- Goregaon, District-Mumbai. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s During the course of appeal, the appellant has reiterated the argument advanced before the AO and has also referred to the decision in the case of 3 i Infotech Ltd . v . Addl. CIT (2014 ) 146 lTD 4 0 5 where the compensation had been received by the asscssee on losing its right to receive income in respect of services being rendered by the assessee to the bank. In the facts and circumstances of the case it is a loss of source of income to the assessee and compensation has been determined on the basis of the said loss. It is the case of the revenue that the amount received by the assessee should be considered as income in the nature of revenue. The ITAT held that the compensation received by the assessee was in the nature of capital and not liable for capital gain tax. 3.2. Considering the factual matrix and the judicial pronouncements, the First Appellate Authority conclude as under:- I have gone through the facts of the case. It is an undisputed fact that there was an agreement between the assessee and M/s Chandralok Fabrics . It is also undisputed fact that the said agreement has been cancelled. It is also a fact which has been accepted by the AU that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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