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TMI Blog2017 (1) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... s pointed out by the ld.counsel for the assessee. In such situation, the AO was not justified to disallow claim of the assessee. - Decided in favour of assessee - ITA. No. 1520/Ahd/2013 - - - Dated:- 6-12-2016 - Shri Rajpal Yadav, Judicial Member And Shri Manish Borad, Accountant Member Assessee by : Shri Dhiren Shah, AR Revenue by : Shri Prasoon Kabra, Sr.DR ORDER Per Rajpal Yadav, Judicial Member Assessee is in appeal before the Tribunal against order of ld.CIT(A)- XXI, Ahmedabad dated 26.3.2013 passed for Asstt.Year 2008-09. 2. Grounds of appeal taken by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature. In brief, the grievances of the assessee are of two folds, viz. (a) the ld.CIT(A) has erred in confirming the disallowance of loss in contract amounting to ₹ 4.00 crores, and (b) the ld.CIT(A)has erred in confirming disallowance of ₹ 9,69,947/- which was made by the AO under section 14A of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962. First we take second fold of grievance i.e. disallowance made under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CITv Winsome Textile Industries Ltd. [20091 319 ITR 204 in which also the Court had observed as under : : 7. We do not find any merit in this submission. The judgement of this court in Ahhishek Industries Ltd(2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application. The assessee has not claimed any exempt income in this year, therefore, no disallowance can be made. Respectfully following judgment of the Hon ble Gujarat High Court c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not granted sufficient time for producing proprietor of Jay Corporation. He appeared before the AO on 23.12.2010 and affidavit to this effect was submitted before the AO. The ld.CIT(A) has called for remand report. It has been placed on paper book at page no.159 to 165. The ld.CIT(A) has gone through the record, and thereafter concur with the AO. The finding of the ld.CIT(A) reads as under: 4.2 I have considered the order passed by the AO, the elaborate remand report and the counter comments by the appellant. I find that the appellant conspicuously silent on about the fact that neither they nor Shri N.M. Shah have undertaken any real estate project in the past or in future. The appellant has also not offered any convincing reasons for entering into agreement for construction of bungalows on an agricultural land when the law of land stipulates that no construction could not carried out on agricultural land, It is also notice worthy that the clause 1 of the agreement states that the party of the 1st part is absolutely seized and possessed land of survey number / block number 695...... which is factually incorrect as this land stands in the name of other persons and there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract and contractual liability. He appraised us as to how this inference drawn by the AO is not sustainable in the eyes of law. We will be dealing each objection and explanation of the assessee in subsequent paras of this order. 9. The ld.DR relied upon the orders of the CIT(A) and pointed out as to how action of the AO is justifiable to ignore this contract and disallowance of the alleged loss to the assessee. 10. We have duly considered rival contentions and gone through the record carefully. Before we embark upon an inquiry on the facts and circumstance pleaded by the assessee and considered by the AO about the allowability or disallowabilty of the claim of loss, we deem it pertinent to keep in mind certain fundamental proposition of law for appreciating such controversy. It is pertinent to observe that in order to claim expenditure under section 37(1) of the Income Tax Act, assessee requires to fulfill certain conditions viz. (a) there must be expenditure, (b) such expenditure must not be of the nature described in sections 30 to 36, (c) expenditure must not be in the nature of capital nature or personal expenditure of the assessee, and (d) expenditure must be laid out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. . But it must not suffer from the vice of collusiveness or colourable devices. 12. In the light of the above, let us examine the facts of the present case. As observed earlier, the assessee had entered into an agreement on 27.6.2007 with Jay Corporation for construction of 100 bungalows on plot of land admeasuring 8802 sq.meters. According to the assessee, it failed to fulfill the terms and conditions of this agreement, and therefore, in view of terms and conditions of agreement for making payment, damages it has paid a sum of ₹ 4 crores to Jay Corporation. In support of this claim, the assessee has filed copy of the agreement dated 27.6.2007, copy of cancellation agreement dated 20.3.2006, confirmation from Jay Corporation, details of payment through account payee cheques to Jay Corporation, copy of ledger acfount of Jay Corporation in the books of the assessee has been placed on page no.123n of the paper book. Details of payments are being duly reflected in the accounts of the assessee. It has also been brought to our notice that money was not withdrawn for a substantial time from the account of Jay Corporation and it is not case of the AO that amounts were im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunglow scheme. Known asAaditaya Bunglow. 3) The Party of the First Part has appointed Hiren Mewada as the Architect and the said Architect has prepared the plans, drawings and elevation of the said Plot of land and the specifications of the works to be done and of the materials. 4) The Party of the Second Part engaged in the Business of the building construction and land developers has agreed to construct the said Plot of the Land. NOW IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS: 1. The Party of the Second Part will construct the 100 bunglows out of the said Plot of the Land in conformity with the plans, drawings, specifications and elevations prepared by the Architect with the material of best quality. 2. The Party of the Second Part hereby undertake to commence the construction within 30 days of approval of Development Plans by appropriate authority ana1 complete the construction on or before the expiry of 24 month's from the date of execution of these presents In accordance with the plans duly approved and sanctioned by the appropriate authority. 3. The Party of the First Part will pay to the Party of the Second Part a sum of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be entitled to point out to the architect any defects in the construction work, quality of workmanship or materials used when such defective work is in progress or being executed or such material is brought on site. If the architect is satisfied about the objections raised, the said architect shall certify the same in writing and direct the Party of the Second Part to rectify at their own cost the defect in the said construction work or remove such defective materials and the same shall be rectified or removed by the Party of the Second Part as directives. IN WITNESS WHEREOF the patties have set and subscribed their hands and seal on the day 27 of June 2007 at Ahmedabad. 13. Contrary to the above evidence, conclusions of the AO are based on inference drawn from the circumstances. In the remand report, the ld.AO has considered it more elaborately and objectively. He formulated the following four questions: (a) Whether there is any genuine agreement entered into with M/s. Jay Construction? (b) Whether M/s. Jay Construction is genuine entity and has the capacity to engage a contractor like Ganesh Plantation Limited? (c) Whether the so called agreement is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on large number of decisions, at the end of the Hon ble Gujarat High Court that these benefits were denied to the developers on the conditions that approval was not in their names, land was not owned by them. The Hon ble Gujarat High Court has considered an important question of law in bunch of appeals along with the case of Radhe Developers reported in 351 ITR 403. The question framed by the Hon ble High Court reads as under: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing deduction u/s.80IB(10) r.w.s. 80IB(1) to the assessee when the approval by the local authority as well as completion certificate was not granted to the assessee but to the landowner and the rights and the obligations under the said approval were not transferable, and when the transfer of dwelling units in favour of the end-users was made by the landowner and not by the assessee?'' 15. The Hon ble High Court has ultimately held that for developing housing project, it is not necessary that the assessee to be owner of the land. Similarly, it was not necessary that approval should be in the name of assessee. If assessee has borne ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.CIT(A) has also raised issues regarding who has applied for change of land user certificate; who has applied for plan etc. No doubt the contract does not spell this aspect. It talks about plan required to be prepared by an architect. 18. Next objection given by the AO is that Shri N.M. Shah could not appear before him for examination. It is pertinent to note that notice under section 143(2) was issued upon the assessee on 25.9.2009 vide which an opportunity was given to submit any details in support of return. Assessment proceedings remained dormant upto June, 2010 when incumbent in the seat of the AO changed and new incumbent came. He again issued noticed under section 143(2). Proceedings have started and the assessee has submitted certain details on 12.7.2010. With regard to the present issue, the AO had raised specific query vide letter dated 5.10.2010. He completed the assessment on 22.12.2010. During this period, he issued a notice to the proprietor of Jay Corporation and summons under section 131 of the Income Tax Act. The proprietor has alleged that he could not appear on 22.12.2010 on account of his pre-occupation and not keeping good health, but he appeared on 23.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have operated in the minds of two businessmen exploring possibilities of business while entering into transaction. The approach of the Revenue authorities is such that every business venture would only give profit. With this angle, if a transaction is being appreciated, then the circumstances and questions would only give rise to suspicion. On the other hand, stand of the assessee as a businessman is that in such type of projects where everything was depending on getting approval from the Government nothing concrete could be anticipated. To our mind, it is only difference of opinion in appreciating a transaction. After looking into the explanation of the assessee with all other attending circumstances, we are of the view that the assessee had entered into an agreement which was a business venture and suffered loss. It has made payment of contractual liability. Money has been paid through account payee cheque and it did not return to the assessee as pointed out by the ld.counsel for the assessee. In such situation, the AO was not justified to disallow claim of the assessee. We allow grounds of appeal of the assessee and delete the disallowance. 20. In the result, the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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