TaxTMI 
TaxTMI 
2010 (11) TMI 655
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs of the appellant have ever questioned such liability to pay compensation in respect of the agreement ostensibly entered into by Sri P.Dayananda Pai with other and thus disallowing such bonafide liability incurred on such slender ground is purely on suspicion and surmise, assumptions and presumptions and is thus vitiated and requires to be allowed under the facts and in the circumstances of the appellant's case. 4. The authorities below failed to appreciate that it has been the practice of the appellant firm to enter into contracts with others in the names of several individual partners and such contracts although entered into in the individual name for transactional purposes are nevertheless are always adopted, executed and performed by the appellant only and therefore, there is no justification to disallow the liabilities incurred by way of compensation in respect of such transactions on the ground the agreements have not been entered into specifically by and on behalf of the firm with M/s.Manipal Infocom Pvt. Ltd. 5. The finding of the authorities below that the compensation payable by the appellant firm in respect of the transaction ostensibly entered by one o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow cause notice on 20.12.2007 stating that the debit of compensation of Rs.64.14 Crores is the major reason for loss of Rs.61.23 Crores claimed in the revised return of income and on a perusal of the papers filed by the assessee in support of its claim of compensation, it was noticed as under: i) Sri P. Dayanand Pai had entered into an agreement with M/s Manipal Infocom Pvt. Ltd. on 2.4.2002 in his individual capacity. ii) As per this agreement, Sri Pai agreed to transfer part of his interest in the built up areas of the four properties which were proposed to be developed by various builders under joint development agreement. iii) The total sale consideration for these properties was Rs.22 Crores which was paid by M/s Manipal Infocom Pvt. Ltd., vide cheque dt.30.3.2002. iv) There was another agreement between Sri Pai in his individual capacity and M/s Manipal Infocom Pvt. Ltd. on 10.3.2004, according to which (a) Sri Pai undertook to give all the connected title deeds, legal opinions, sanction plan, etc in respect of each of the property within 30 days; (b) Sri Pai undertook to get a confirmation letter from all the builders confirming and agreeing t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t a sum of Rs.64.00 Crores as compensation in the Schedule mentioned therein and if the assessee does not make the payment of Rs.86.00 Crores within the stipulated time, then the assessee shall be liable to pay interest thereon @ 8% on the outstanding sums due to the claimant till the date the entire sums due are paid to the claimant. Till the dues are paid to the claimant and till the payments are realized by the claimant, the assessee shall not sell, charge, mortgage or dispose off or in any manner alienate the properties mentioned therein. After taking into consideration, the above factors, the Assessing Officer observed that the assessee has debited in the profit and loss account, the amount of compensation paid by the firm to CALL amounting to Rs.64.74 Crores and as seen there from Mr. Dayanand Pai had entered into an agreement with M/s. Manipal Infocom India Pvt. Ltd. on different dates, in his individual capacity, and in only arbitration proceedings he has been shown as partner of the firm. He thus held that the person entering into agreement in 2002 and 2004 is Mr. Dayanand Pai in his individual capacity and it cannot be debited in the hands of the firm. He further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vt. Ltd. was entered in to by Sri Dayanand Pai in his individual capacity and it is also not clear whether the firm had entered into any joint development agreement with M/s Manipal Infocom Pvt. Ltd. He further held that the Arbitration Order is dt.11.7.2005, while the assessee has claimed the amount in the A.Y. 2005-06. The assessee has not offered the receipt of income in any of the previous years but claimed the loss of compensation on such receipts. He thus disallowed the claim of compensation amounting to Rs.64.74 Crores. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A), who confirmed the order of AO, holding as under; 3. That the properties for which the agreement was entered into with M/s MIPL and subsequently, with M/s CALL, the assessee was not having any right in the said properties at the time of entering into an agreement or even subsequent to that. It is also evident that all the agreements which resulted in the alleged compensation was entered by Shri Dayanand Pai, in his individual capacity and not as partner in the firm and therefore, the expenses claimed are not incurred for the purpose of the business carried on by the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee has not been able to prove, with evidence that the properties belonged to the assessee firm and Shri Dayanand Pai entered into the agreement for the sale of the properties on behalf of the assessee firm. 6. The learned DR submitted that the firm and the individual are two different entities and therefore, the status of the parties has to be clearly mentioned in the agreements as these agreements will have to be executed in accordance with law. Therefore, according to the learned DR the AO and the CIT(A) have rightly disallowed the claim of the compensation in the hands of the assessee firm. 6.1 Having heard both parties and having gone through the material on record, we find that the basic question before us is whether the agreement entered into by Shri Dayanand Pai with M/s MIPL and also subsequently with M/s CALL is in his individual capacity or in the capacity as the Managing Partner of the assessee firm. Undisputedly, the assessee firm is in the business of real estate and Shri Dayanand Pai is the Managing Partner of the said firm. The first agreement between Shri Dayanand Pai and M/s MIPL is dated 02-04-2002. As per this agreement Shri Dayanand Pai ....