ITAT Mumbai deletes addition from invalid SRA project MOU lacking municipal permissions, rules only pre-dissolution income taxable

ITAT Mumbai deleted addition based on sale consideration from SRA project MOU, finding the document invalid and lacking evidence of required municipal permissions. The tribunal held that additions cannot be sustained on assumptions without cogent material evidence. Regarding taxation of income after firm dissolution, ITAT ruled only Rs. 50 lakhs received before dissolution date could be taxed in assessee's hands, provided it wasn't already taxed in successor partner's hands. Matter remanded to AO for verification of this limited amount while balance addition was deleted for lack of justification.

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Issues:
Addition of Rs. 20 crores on account of sale consideration for assessment year 2007-08.
Addition of Rs. 6,73,45,900/- for assessment year 2008-09.

Analysis:
*Assessment Year 2007-08:*
The assessee contested the addition of Rs. 20 crores based on a MOU found during a search operation. The AO relied on the MOU, but the assessee claimed it was fraudulent. The CIT(A) upheld the addition. However, the ITAT found the MOU invalid as it was between a partnership firm and a non-existing entity. It also noted the lack of evidence for project commencement. The addition was deemed unsustainable due to baseless presumptions.

*Assessment Year 2008-09:*
The AO added Rs. 6,73,45,900/- based on another MOU. The CIT(A) upheld the addition, stating the income accrued as per the accrual system. The ITAT observed the dissolution of the firm and transfer of assets to a partner. It noted insufficient evidence of project development and payments received. The ITAT directed AO to verify Rs. 50 lakhs received before dissolution and deleted the rest of the addition. The decision was made in favor of the assessee.

In conclusion, the ITAT allowed the appeal for assessment year 2007-08 and partially allowed the appeal for assessment year 2008-09 for statistical purposes.

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