AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 203
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.... Mr. Mahesh Bhupathi, claimed as a deduction by the Assessee while computing income from the project 'Nitesh Long Island', on the ground that the said expenditure is not relatable to the project 'Nitesh Long Island', is proper. 4. The facts that are necessary for adjudication of the aforesaid common issue are as follows. 5. The Assessee is a company. It is engaged in the business of real estate development which includes executing engineering contracts, development and maintenance of buildings and real estate business. In the course of its business it entered into an agreement dated 24.5.2005 for purchase of land measuring 5 Acres and 29.35 Guntas from M/s. Sunrise Realty and Leisure Private Limited ("SRLPL") in Survey No.1B consisting of eight Blocks numbered 3,4,7,8,13,14,18, & 23 at Jakkur Plantation Village, Yelahanka Hobli, Bangalore North Taluk, [hereinafter referred to as "the property of SRLPL"], for a sale consideration of Rs. 19,64,91,699/-. 6. By an agreement dated 16.6.2005 between the Assessee and ITC Limited, the Assessee agreed to facilitate the transfer of the property of SRLPL to ITC Limited and ITC Limited also agreed to engage the Assessee for the purpose of d....
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....round of the payment of compensation of Rs. 8.5 crores by the Assessee to Mr.Mahesh Bhupathi are as follows: 11. Mr.Mahesh Bhupathi owned an extent of about 3 Acres of land in S.No.1B in Block No.30, 31 & 40 of Jakkur Plantation village, Yelahanka Hobli, Bangalore North Taluk, Bangalore, [hereinafter referred to as "the property of Bhupathi"]. The property of Bhupathi has nothing to do with the property of SRLPL. The two properties are not adjacent to each other and located at different locations though they are in the vicinity of each other. A plan showing 'the property of Bhupathi' and 'the property of SRLPL' is enclosed as Annexure-I to this order for better appreciation of facts. 12. The Assessee entered into a Joint Development agreement dated 25.9.2004 with Mr.Mahesh Bhupathi whereby the Assessee agreed to develop the property of Bhupathi whereby the Assessee would construct maximum permissible construction over the property of Bhupathi at its cost and would deliver 28% of the built up area to Mr.Mahesh Bhupathi, in consideration of Mr.Mahesh Bhupathi selling 72% undivided share of the land of the property of Bhupathi together with a right to sell the 72% built up area by t....
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....e subsequent years, therefore, adjustments not to be made in this assessment year. The A/R further argues that, the assessee has been following accrual system of accounting accordingly in the A.Y. 2009-10 adjustments as per revised cost has already been made therefore, adjustments in this year are not proper. However, the assessee's contentions are not acceptable. The proportionate cost has been debited in P & L A/c as per original agreement and remaining balance has been become part of closing stock in the books of the assessee and the revised compensation will be spread over as per percentage completion method. Thus, till the completion of the project the actual compensation payable is subjected to revisions as per business conditions. Therefore, the exact amount of compensation payable is likely to change any time during the time of the project. Thus, the compensation payable is sort of unascertained liability. Moreover, it's only non compete compensation, but not of any actual expenditure incurred. Accordingly, the appropriate compensation needs to be reduced as per revision agreement. In view of this, allocation of compensation reworked on the basis of revised value i.e. 6.7 ....
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....unt payable to Mahesh Bhupathi was treated as cost of the project and amortised over the contract period." 17. The AO however rejected the claim of the Assessee for considering the aforesaid sum as expenditure relatable to the project NLI. According to the AO the Assessee had entered into agreements with Mr. Mahesh Bhupathi and ITC Ltd at different points of time for development of their respective landed property. Under such circumstances, compensation amount paid to Mr. Mahesh Bhupathi for cancellation of JDA cannot be considered as cost of project NLI which in itself is a different transaction. The AO also found that the Assessee had entered into a separate MOU with SRLPL for purchase of the property of SRLPL on 4.05.2005. Subsequently, when ITC Ltd approached the Assessee, a separate MOU was signed on 16.06.2005 and the same land was then transferred to ITC Ltd vide sale deed on 1.04.2006. On account of this transfer, the Assessee in the capacity of confirming party, has received consideration of Rs. 67344214/- from ITC ltd. which it had offered as income in the AY 2007-08. According to the AO the above event indicated that the role of the Assessee in facilitating the transfer....
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....s account is disallowed as expenditure." 19. In AY 09-10, the claim of the Assessee was as follows: As per the return of income Total compensation payable 6,70,00,000 POC 88.91% Gross amount recognised as expenditure for the AY 2009-10 5,95,67,223 Amount already charged to P/L account in the AY 2008-09 5,45,66,339 Net amount charged to P/L account in the AY 2009-10 50,00,884 20. For the same reasons given in AY 08-09, the AO rejected the claim of the Assessee. 21. On appeal by the Assessee, the CIT(Appeals) confirmed the order of the AO. 22. Before the CIT(Appeals), the AO had pointed out that the property of Bhupathi was ultimately sold under sale deed dated 24.4.2006 to one Raghunath Vishwanath Desphande (RVD) and not to SRLPL and this fact goes to show that the plea of the assessee that SRLPL agreed to sell the property of SRLPL to assessee/ITC, only if the assessee arranges for sale of the property of Bhupathi to SRLPL. On the above plea of the AO, the assessee submitted that Mr. RVD was representing SRLPL and therefore no adverse inference can be drawn in this regard. 23. The CIT(Appeals), however, was of the view that the property of Bh....
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.... agreements between the assessee and Mahesh Bhupathi on the one hand, and the agreement between the assessee and ITC on the other hand. According to him, the sequence of time at which the agreements were entered into between the parties will only go to show that the transaction for purchase of the property of Bhupathi and the property of SRLPL had nexus and were being looked upon by the assessee as alternative avenue for development of residential complex for ITC. 26. The ld. DR placed strong reliance on the order of the CIT(A) / AO. It was submitted by him that in the A.Y. 2007-08, the AO did not go into the question of nexus between the property of Bhupathi and the property of SRLPL. He proceeded on an erroneous assumption that Rs. 8.5 crores relates to the NLI property. According to him, the said order cannot stand in the way of revenue taking a stand in A.Ys. 2008-09 & 2009-10 that the said expenditure has no nexus with the NLI property. 27. We have given a very careful consideration to the rival submissions. At the outset, it needs to be emphasized that the property of Bhupathi and the property of SRLPL are at different places. As already stated, a copy of the plan showing a....