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2016 (2) TMI 568
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.... Pvt. Ltd. towards sale of land situated at Baner, Pune. On receipt of this information, the AO issued notice u/s.148 to the assessee. In response to the said notice, the assessee filed a letter stating therein that the return filed on 30-09-2009 be considered as return filed in response to notice u/s.148. 4. During the course of assessment proceedings the AO, on going through the computation of income noted that the assessee has claimed exemption u/s.54F of Rs. 3.25 crores treating the money received of Rs. 3 crores as Long term Capital gain on sale of plot at Baner. He noted that during the survey u/s.133A conducted on 12- 03-2008 in the premises of Shri Kailash Babulal Wani, a copy of the Memorandum of Understanding (MOU) was found which is signed between Fullmoon Housing Pvt. Ltd. and Shri Kailash Babulal Wani. As per the said MOU Rs. 3 crores has to be paid to one Shri Sanjay Nemichand Lohade. 5. During the course of assessment proceedings statement of the assessee Shri Sanjay Nemichand Lohade u/s.131 of the I.T. Act was recorded. The assessee moved an application u/s.144A of the I.T. Act before the Addl.CIT, Ahmednagar Range, Ahmednagar who vide his letter dated 30-12-2....
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.... Housing & Finance Pvt. Ltd. Pune. This MOU was executed on 16-05-2007 between Fullmoon Housing & Finance Pvt. Ltd. and Shri Kailash Wani. In the said MOU the total price of the property and schedule for payment and names of the party to whom and how much amount to be paid on behalf of Shri Kailash Wani by the proposed purchaser Fullmoon Housing & Finance Pvt. Ltd. was mentioned. In the said MOU it was very specifically mentioned that the total cost was fixed at Rs. 9,26,46,600/- which is inclusive of Rs. 3 crores to be paid to the assessee. Shri Sanjay Nemichand Lohade has released all his rights in the property. Thus, the assessee Shri Sanjay Nemichand Lohade got Rs. 3 crores for relinquishment of all his rights which was shown and disclosed in the return of income under the head "long term capital gain" and it was claimed exempt u/s.54F from the said amount as the said amount was utilized for acquiring the residential house. 7. However, the CIT(A) also was not convinced with the explanation given by the assessee and upheld the action of the AO by observing as under : "6. I have carefully perused the material available on record. The facts of the case are enumerated b....
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....y. According to this M.O.U., Wani paid Dhorje Rs. 6 lacs as compensation. Dhorje agreed that hereafter Wani will take carae of the civil suit on behalf of Dhorje. Subsequently since Dhorje could not attend court matters and other meetings regarding sale of land therefore, he gave Power of Attorney to Shri. Sanjay Lohade. This Power of Attorney in favour of Shri. Sanjay Lohade, the appellant was signed on 16.7.2007 and through it the appellant was given all the rights on behalf of Dhorje for executing and performing various acts and deeds and things in respect of entire land i.e. 161 R and civil suit no. 1006/1996. 6.3. On the same day i.e.16/7/2001 Dhorje, Wani and Lohade entered into a Memorandum of Understanding (M.O.U.) Accordingly, Wani granted Development Rights of 40R of plot B to Sanjay Lohade. Further it was negotiated that Lohade will obtain Development Rights for plot A from Kadam family in his name or in the name of his nominee. 6.4 On 16/7/2007 Arvind Jain and Shravan Agarwal on behalf of Fullmoon Housing Pvt. Ltd. entered into M.O.U. with Wani regarding 81R of Plot A. Out of this Kadam family is owner of 40R and regarding 41R Sanjay Lohade was holding....
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....or was allowed possession of the property in question in part performance of a contract as per sec. 53A of the Transfer of Property Act, 1882. The subsequent paras would therefore, discussed what were the rights conferred on the appellant and whether any of those rights and obligations fell within the definition of Transfer" or not. 7.3. As already stated above, after the expiry of the original owner Shri Vyankatesh Kadam on 4.2.1987 his widow and six daughters became the legal heirs of the 161 ares of property specifically bearing S.Nos. 5/1A (herein referred to as plot A) and 5/1B (herein referred to as Plot B). Kadam family entered into agreement of sale with Pradeepkumar & Co. (represented by Shri Pradeepkumar Dhorje) for the entire property on 1.10.1995, after an initial consent deed executed on 24.8.1995. Shri Dhorje paid Rs. 25 lakhs as earnest money and it was agreed that sale deed for 80 ares (Plot A) would be executed during the month on payment of Rs. 20 lakhs in cash and Rs. 60 lakhs in cheque. However, the Kadam family entered into registered sale deed in respect of Plot A with Wani and Roundal family for a consideration of Rs. 48 lakhs through 8 separate sale....
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....ohade e) Shri Lohade is to execute deeds and documents in respect of Plots A and B f) Shri Dhorje receives agreed consideration from Shri Wani as full and final settlement in exchange for his no objection for all the transactions referred to above. g) Shri Dhorje and Shri Wani would have no interest in Plots A and B except the 4 development agreements duly between Wani (and 3 others) with Shri Lohade and his wife in respect of portion of Plot B. 7.6. The appellant has contended that all rights and interest including development rights stand vested in him through the above mentioned MOU. However, as detailed above, the appellant has only to perform certain specific acts as the power of attorney holder of Shri Pradeep Dhorje. The only development rights that he receives as per this MOU is in respect of 40 ares of land in plot B. No rights interest and title can be said to have passed on to the appellant in respect of plot A, transaction pertaining to which is the subject matter of the present appeal. Even noteworthy is the fact that the ownership question of plot A is, as on that date, still disputed in view of the pendency of the civil suit 1006/9....
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....referred to in para 7.4 supra, acquired collateral rights enjoyed by Shri Pradeep Dhorje. At no point in time, was the appellant also given possession of the property in part performance of any contract as per section 53A of Transfer of Property Act, 1882. The receipt of Rs. 3 crores by way of consideration from Fullmoon Housing Pvt. Ltd. therefore, cannot be treated as long term capital gains in the hands of the appellant and has been rightly treated as commission and brokerage by the Assessing Officer. In the result, Grounds No.1 to 11 are dismissed. 8. It may be mentioned here that the appellant has raised the issue of lack of opportunity in connection with the section 144A proceedings. However, it is seen that the application u/s.144A was suo moto filed by the appellant and he was given an opportunity of being heard. Further, once directions are received u/s.144A, this is no ground for the Assessing Officer to separately record his comments on the directions received from his supervisory authority. Hence, I find no merits in Grounds No.4, 8, 10 and 11 on the issue relating to directions passed u/s.144A and lack of opportunity, as claimed by the appellant." 8. Aggrie....
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....ave appreciated that the assessee had acquired the development rights in respect of the land at S.No. 5/1A vide MOU dated 16.07.2001 and the amount of Rs. 3 Crs. received by the assessee vide MOU dated 16.05.2007 was in consideration of the surrender of development rights acquired by the assessee therein and hence, the amount of Rs. 3 Crs. was rightly offered to tax as capital gain. 6 The learned CIT(A) erred in not appreciating the correct facts of the case and hence, the addition sustained may kindly be deleted. 7 The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal. 9. The assessee has also raised an additional ground which reads as under : "The appellant submits that the amount of Rs. 3 crores received should be considered as damages and hence, the said amount should be treated as exempt from tax." 10. The Ld. Counsel for the assessee submitted that the additional ground raised is legal in nature and all the facts are on record. Therefore, the same may be admitted for adjudication. Relying on various decisions he submitted that since no new facts are required to be investigated and the additional ground is....
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....of Rs. 3 crores for releasing his rights in the said property. He submitted that the assessee claimed this transaction resulted into long term capital gain while the AO and the CIT(A) held that this amount is brokerage or commission paid to the assessee. Accordingly, they taxed it as business income as against Long term Capital gain shown by the assessee. 15. The Ld. Counsel for the assessee submitted that brokerage or commission is to be paid for the services rendered in connection with the sale transaction. In this case for the sale of land to Fullmoon Housing & Finance Pvt. Ltd. the AO or the CIT(A) have not proved the nature of services, if any, rendered by the assessee. Secondly, the brokerage or commission in connection with the land deal is generally to the extent of 2 to 3%. However, in the instant case the assessee has been paid Rs. 3 crores out of the total consideration of Rs. 9 crores by the developer which is almost 33% of the total consideration. Hence, such a big amount is unlikely to be brokerage or commission. Thirdly, the agreement clearly states that the amount is being paid to the assessee for surrendering his rights in the land. The AO and the CIT(A) interpr....
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....eferring to the decision of the Pune Bench of the Tribunal in the case of Shri Kailash B. Wani vide ITA No.858/PN/2013 order dated 30-06-2015 for A.Y. 2008-09 he submitted that the Tribunal in the said decision has held that Shri Sanjay Nemichand Lohade had a right in the land and it is for that purpose, the compensation has been paid for releasing his rights in the land. He submitted that there is no evidence found during the course of survey or thereafter that the assessee is a broker or mediator. 21. So far as the additional ground is concerned the Ld. Counsel for the assessee submitted that the compensation received by the assesses constitutes damage for breach of agreement in his hands and therefore the same is not at all taxable in his hands. For the above proposition, the Ld. Counsel for the assessee relied on the following decisions : i. CIT Vs. J. Dalmia reported in 149 ITR 215 (Delhi) ii. Baroda Cement and Chemicals Ltd. Vs. CIT reported in 158 ITR 636 (Gujarat) iii. CIT Vs. Abbasbhoy A. Dehgamwalla & others reported in 195 ITR 28) 22. Without prejudice to the above, the Ld. Counsel for the assessee submitted that if the receipt has result....
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....h Court the same should he held as capital receipt not exigible to tax. He accordingly submitted that the ground raised by the assessee should be allowed. 26. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case a survey u/s.133A of the Act was conducted in the premises of Shri Kailash Babulal Wani during which an MOU dated 16-05-2007 was impounded. As per the said MOU land admeasuring 41 Ares is to be purchased by Fullmoon Housing Pvt. Ltd. for total consideration of Rs. 9,26,46,600/- from Shri Kailash Babulal Wani. The bifurcation of payment of Rs. 9,26,46,600/- is as under: 1. Rs.3,40,00,000/- To Kadam sisters (Original owners) 2. Rs.25,00,000/- For expenses such as stamp duty etc. 3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla) 4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (For surrendering rights) 5. Rs.2,11,46,600/- To be paid to the assessee in cash TOTAL Rs.9,26,46,600/- 27. The assessee in his c....
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....and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case a survey action u/s.133A of the I.T. Act was conducted in the business premises of the assessee during which an MOU dated 16-05-2007 was impounded. As per the said MOU land admeasuring 41 Ares is to be purchased by M/s. Full Moon Housing Pvt. Ltd. for a total consideration of Rs. 9,26,46,600/- from the assessee. The bifurcation of payment of Rs. 9,26,46,600/- is as under : 1. Rs.3,40,00,000/- To Kadam sisters (Original owners) 2. Rs.25,00,000/- For expenses such as stamp duty etc. 3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla) 4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (Forsurrendering rights) 5. Rs.2,11,46,600/- To be paid to the assessee in cash TOTAL Rs.9,26,46,600/- The amount of Rs. 2,11,46,600/- which was received by the assessee in cash was offered as additional income in the statement of the assessee recorded during the course of survey. So far as the other 4 items are concerned the AO accepted the items 1, 2 and 3 above as....
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.... as to how and why the amount of Rs. 3 cores should not be held as genuine as business expenditure when the same was paid to Mr. Lohade for surrendering his rights as per the MOU. Further, the same amount has been paid by account payee cheque and the amount has been taxed as brokerage/commission income in the hands of Mr. Sanjay N. Lohade as per the direction of the Addl.CIT and upheld by the CIT(A). 13.3 We find clause 9 of the MOU dated 16-07-2001 reads as under where Party No.3 is Mr. Sanjay N. Lohade and Party No.2 is the assessee ,i.e. Mr. Kailash Babulal Wani : "9. Similarly, further negotiation took place between the Party No.2 of the one part, the Party No.3 of the second part and said Kadam of the third part and accordingly, the Party No.3 decided to obtain development rights and/or purchase the said Plot-A from said Kadam, either in his name or in the names of his nominees, at the sole discretion of the Party No.3". 13.4 We further find that Mr. Arvind Jain, Director of M/s. Full Moon Housing Pvt. Ltd. in his statement recorded u/s.131 on oath on 29-11- 2010 in his reply to Question No.25 recorded u/s.131 on oath on 29-11- 2010 has answered as u....
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.... received out of Rs. 3 crores the same was shown as "Advance' in my books of accounts and no portion of it has been offered to tax till date. The computation sheet filed is my intention to revise the return and to offer the money to tax in the year ended on 31-03-2008. Q.25. have you signed any deed/agreement/document etc. in favour of Shri Kailash Wani and if yes when and produce copy of such document? Ans. No and never." 13.6 The above replies clearly and categorically point one thing that the land in question was not free from litigation and civil suit was pending. Therefore, we find force in the argument of the Ld. Counsel for the assessee that the purchaser M/s. Full Moon Housing Pvt. Ltd. after evaluating the interest in the land of Mr. Sanjay N. Lohade and after negotiating for the amount paid the amount of Rs. 3 crores on their behalf and not on behalf of the assessee. It was the purchase who itself decided the terms of payment including the amount to be paid to Kadam Family, Mr. Sanjay N. Lohade and to the respondent and therefore the AO's observation that the said purchaser made the payment to Mr. Sanjay N. Lohade at the behest of the respondent, in our ....
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.... Court in the case of CIT Vs. Sales Magnesite Pvt. Ltd. has held that to decide whether the expenditure is incurred for the purpose of the business and allowable as deduction u/s.37 of the I.T. Act, it is not essential that it should be necessary, legally or otherwise, to incur the same or that it should directly and immediately benefit the business of the assessee. Even expenditure incurred voluntarily on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business would be deductible u/s.37. The question whether it was necessary for commercial expediency or not is a question that has to be decided from the point of view of the businessman and not by the subjective standard of reasonableness of the revenue. The question must be viewed in the larger context of business interest or commercial expediency. No abstract or pedantic view can be taken in the matter. In the instant case, the assessee is engaged in the business of trading in land and property development. No buyer will buy any property when the property in question is disputed. It is also the responsibility of the seller to sell the property free of litigation from any encumbranc....
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....he assessee's right, title and interest under the agreement and Rs. 90,000/- being the earnest money earlier deposited by the assessee. The Tribunal held that this was a case for levy of tax on the capital gains made by the assessee in respect of the transaction but it took the view that the assessee had suffered a loss to the extent of Rs. 66/- per square yard as a result of the assignment in favour of A & B on the basis that the assessee would have suffered that loss if the assessee had purchased the land and sold it. On a reference the Hon'ble High Court has held as under : "What is a capital asset is defined in s. 2(14) of the I.T. Act, 1961. Under that provision, a capital asset means property of any kind held by an assessee, whether or not connected with his business or profession. The other sub clauses which deal with what property is not included in the definition of capital asset are not relevant. Under s. 2(47), a transfer in relation to a capital asset is defined as including the sale, exchange or relinquishment of the asset or the extinguishment of any right therein or the compulsory acquisition thereof under any law. The word " property ", used in s. 2(14) of ....