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TMI Blog2024 (9) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... aid period i.e., AY 2005-06. Further, the assessee admittedly did not contract with MIPL to provide the built up area in the four properties mentioned in the agreement dated 2.4.2002 nor were any of the four properties mentioned in the said agreement belonged to the assessee nor that the assessee had any manner of right, title or interest in the said properties. The contention of the assessee that the properties belonged to the assessee by virtue of Section 14 of the Act of 1932 is ex facie untenable and liable to be rejected having regard to the fact that there is no material placed on record to demonstrate that the said properties were brought into or were part of the stock of the firm. Hence, the properties cannot by any stretch of imagination be held to be the properties of the assessee firm. The reasoning of the Tribunal that the advance of Rs. 22.00 crores having been shown in the books of accounts of the assessee and earlier transactions made by Sri Dayanand Pai having been shown as transactions made by the assessee, will also not aid the case of the assessee since the context of the said transaction has not been looked into. In view of the admitted position that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d land development. For AY 2005-06, the respondent filed its return of income on 10.1.2006 declaring loss of income of Rs. 61,11,28,165/-. During the course of assessment, it was observed that the assessee had claimed Rs. 64,74,05,370/- as compensation paid in its profit and loss account. In response to the queries raised by the Assessing Officer, the assessee placed on record that it had entered into an agreement with M/s. Manipal Infocom Pvt. Ltd., [MIPL] for sale of its rights in respect of four properties in Bengaluru for Rs. 22.00 crores and since it did not hand over the properties as per the agreement within the stipulated time, the purchaser claimed compensation and the dispute between the parties was referred to arbitration. That the compensation was paid pursuant to the Arbitrator s award. 3. The AO, vide assessment order dated 28.12.2007 assessed the total income of the assessee at Rs. 3,62,77,205/- after disallowing the compensation amounting to Rs. 64,74,05,370/-. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [Commissioner] . The Commissioner, affirmed the order of the AO. The assessee filed ITA No. 406/Bang/2010 befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee and hence, the assessee is entitled to claim the said deduction. It is further contended that the amounts have been crystallized and amortized as noticed by the Tribunal and contends that the same is liable to be granted under Section 37 (1) of the IT Act. It is further contended that the order of the Tribunal is just and proper and the substantial questions of law are required to be answered in favour of the assessee and against the Revenue. Hence, he seeks for dismissal of the above appeal. 7. The submissions of both the learned counsel have been considered and the material on record has been perused. 8. It is forthcoming that pursuant to the order dated 10.11.2010 passed by the Tribunal, wherein the matter was remanded to the file of the AO, the assessee was called upon to submit the Joint Development Agreement [JDA] , in response to which the assessee vide its letter 23.11.2011 has placed its submissions. 9. The factual matrix is that one Sri P. Dayanand Pai entered into an agreement with MIPL on 2.4.2002 in his individual capacity, wherein he has agreed to transfer his part of the interest in the built-up area of 4 properties, which were proposed to be developed by variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said expenditure could not be allowed during AY 2005-06; 12. The assessee preferred an appeal before the Commissioner. The Commissioner, vide order dated 28.11.2013 dismissed the appeal by recording the following findings: 12. It is clear from the above that none of the properties for which the appellant claims to have received the advance from Manipal Infocom Pvt Ltd of Rs. 22 crores (in connection with which the compensation is claimed to have been paid) belonged to the appellant or formed the part of the appellant s assets. In fact, the appellant has categorically stated before me and as apparent from the above submissions that these properties belonged to other group concerns of Sri P Dayanand Pai, Managing Partner, like M/s Pai Electronic Systems Pvt Ltd, M/s Surya Builders and Developers, M/s Global Associates and M/s Bangalore Housing Development and Investments. For any payment of this nature to be claimed as expenditure, it is important that the said property should have either been acquired by the appellant as a fixed asset or/and it should have started yielding revenue. This payment, in effect, is towards buying back the rights in the property for which the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on the following grounds: i. That the properties to be developed and transferred by the assessee to the other party were identified in the agreement dated 2.4.2002; ii. The properties identified by the assessee for development through other developers under the JDA, registration of ownership of the properties is not a prerequisite condition for acquiring the right, title and interest in the constructed area of the properties developed under the JDA; iii. The validity and enforcement of the agreement dated 2.4.2002 as well as the revised agreement dated 10.3.2004 cannot be questioned on the basis that the assessee was not the registered owner of the properties, when it is clear to the parties to the agreement that the said properties would be developed in future under the JDA and will receive the constructed area as per the agreement; iv. The receipt of Rs. 22.00 crores from the MIPL was recorded in the books of accounts of the assessee partnership firm; v. That this is not an isolated transaction carried out by Dayanand Pai, but it is a regular practice of the assessee to purchase and sell the properties through the said Dayanand Pai; vi. That for the AY 2004-05 and 2008-09 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal. It is relevant to note that the Tribunal in its order dated 10.11.2010 held that some more factual findings are necessary with regard to the contention put forth by the assessee that Sri Dayanand Pai had entered into the agreement on behalf of the firm and that the AO should have examined the other parties to the agreement and also examined the JDA. It is forthcoming that after remand, the assessee was called upon to submit the JDA and that the assessee vide its letter dated 23.11.2011 has submitted its detailed response with regard to each of the properties as well as produced the relevant documents. The assessee has not raised a ground that the AO has not followed the remand order. The AO has in detail considered the contentions put forth by the assessee. In any event, the Tribunal proceeded to consider the merits of the case and allowed the appeal of the assessee. Hence, in the present appeal also the merits have been considered without going into the order of the Tribunal that the AO did not comply the scope of the remand proceedings. 16. Before considering the contentions of the parties, it is relevant to notice Section 37 (1) of the IT Act, which states as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sell properties through Sri Dayanand Pai, which has been accepted for the AY 2004-05 and 2008-09 and hence, the practice of the assessee doing transactions through Sri Dayanand Pai is well recognized and accepted by the AO. Hence, the Tribunal has held that Sri Dayanand Pai acted on behalf of the assessee and not in his personal, individual capacity. 19. In support of the said finding the Tribunal placed reliance on Section 14 of the Partnership Act, which states as follows: 14. The property of the firm. Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of business of the firm , and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm. (emphasis supplied) 20. It is clear from a perusal of Section 14 of the Act of 1932 that subject to contract between the partners, the property of the firm includes all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext, the AO after appreciating the material on record has noticed that the date of appointment of the Arbitrator was 27.6.2005, the date of filing of claim petition was 11.7.2005, the compromise petition was filed on 5.8.2005 and the arbitral award based on the compromise was passed on 30.8.2005. Hence, the AO held that it appears that the assessee along with MIPL have approached the Hon ble Arbitrator with predetermined purpose of getting stamp of arbitration to their mutually agreed transaction and it is a colourable device to claim the expenditure by the assessee. 25. The Commissioner has also recorded a finding that the assessee has stated that the properties which were the subject matter of the agreement dated 2.4.2002 belonged to the other group concerns of the Managing Partner Sri Dayanand Pai. Hence, the Commissioner has held that payment of Rs. 64.00 crores is not an expenditure allowable for AYs 2005-06 or 2006-07. 26. Having regard to the aforementioned, it is clear that the properties/rights which were the subject matter of the agreement dated 2.4.2002 did not belong to the firm during the said period i.e., AY 2005-06. Further, the assessee admittedly did not contract w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of compensation for breach of a contract, the same will not tantamount to speculative transaction. Having regard to the fact that the assessee was not owning the property or not having any manner of right, title or interest in respect of the property, which was the subject matter of the agreement dated 2.4.2002 or 10.3.2004, it cannot claim the same as a business transaction. Hence, the said judgment will not aid the case of the assessee. 29. It is further relevant to note that the deduction has been claimed for AY 2005-06 whereas, the date of appointment of the Arbitrator was 27.6.2005 and the compromise petition was filed on 5.8.2005 and the arbitral award was passed on 30.8.2005. Hence, the question of claiming deduction for AY 2005-06 does not arise. 30. It is the vehement contention on behalf of the assessee that crystallization having been done and the liability having been provided for, the assessee was entitled to claim expenditure during AY 2005-06. The said contention is untenable and liable to be rejected since there is no factual basis for the same, inasmuch as there is no material placed before the authorities to indicate that the liability was crystallized or provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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