TaxTMI 
TaxTMI 
2018 (2) TMI 1090
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....n law, the CIT[A] was correct in applying the law pronounced in the cases of Jamna Auto Industries vs. CIT [299 ITR (P & H)]? 3. Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in law by not questioning the award of arbitrator, which has been given in a customary and irregular manner since the award is not given by a speaking order." 3. Briefly stated, the facts of the case are that the assessee M/s Thakur Estate Development Pvt. Ltd. (in short 'TEDPL') is engaged in the business of construction and real estate development. It filed its return of income for the year under consideration on 14.09.2011 declaring total income of Rs. 2,29,59,348/-. During the financial year 2007-08 relevant to the assessment year 2008-09, TEDPL had entered into a Memorandum of Understanding (MoU) with Thakur Educational Trust (in short 'TET') on 14.12.2007 for construction of their college premises at Boisar, Taluka Palghar, District Thane. Then TEDPL purchased land admeasuring 14.27 acres on 06.09.2008. The Assessing Officer (AO) observed that the total cost of the land was Rs. 23,45,72,750/-. These were two pieces of contiguous lands marked as serial ....
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....ct, the land for the project was acquired largely out of the said fund and on sale of the land, TEDPL earned profit of above Rs. 48 crore, therefore, it is desirable the TEDPL should have paid some compensation to TET, (iii) since the rate of residential and commercial property increased drastically between 2007 and 2011, if TEDPL was not in a position to execute the contract and TET had to go elsewhere to purchase or construct the college building, it had to incur more costs and therefore, payment of reasonable compensation to TET was necessary. The Ld. CIT(A) allowed the appeal of the assessee holding that payment of compensation @ 10.30% could not be termed as excessive even by considering the interest rate of bank FD which was about 9.5% in the relevant period. 5. Before us, the Ld. DR submits that the conduct of TEDPL, TET and award of the arbitrator on record shows that the entire exercise of cancellation of the contract as well as MoU is a scheme to bring Rs. 20 crore in the tax-free bracket. TET is a registered trust. It is stated by him that whereas TEDPL has claimed the compensation of Rs. 20 crore as a business expense and avoided tax thereon, TET has simultaneousl....
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.... with Maharashtra Industrial Development Corporation (MIDC) (State of Maharashtra & others). 6.1 Relying on the documents mentioned at para 6 hereinbefore, the Ld. counsel submits that soon after acquiring land bearing survey no. 91 and 92, the deal went into rough weather as MIDC staked claim on certain portion of the land and also another person with the name 'Varde' staked claim on portion of the property and TEDPL found it difficult to carry out the construction in terms of MoU on the said land for TET. For litigation with Varde and family, TEDPL had to pay compensation of Rs. 3 crore. It is stated by him that the delay in commencement of the project was due to long waiting period for permission from Charity Commissioner. Since it was agricultural land, TEDPL had to wait for NA order, which was received on 12 October 2009 i.e. after lapse of 21 months from the date of MoU and without NA order, no construction work could have started. As per the said NA order, TEDPL was allowed only 1,35,315 sq. mtr. out of total area of 1,63,080 sq. mtrs. that too with number of conditions after which it came to know that balance land is in the ownership of MIDC, Government of Maharashtra an....
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....Charity Commissioner was received on 21 August 2008 i.e. about nine months from the date of acquisition of land from M/s Jai Mata Di Corporation (page no. 41-51 of P/B). c) Since it was agricultural land, TEDPL had to wait for N.A. order, which was received on 12 October 2009 i.e. after lapse of 21 months from the date of MoU. (page no. 59-64M of P/B). Without N.A. order no construction work could have started. As per the aforesaid N.A. order, TEDPL was allowed only 1,35,315 sq. mtr. out of total area of 1,63,080 sq. mtrs. that too with number of conditions. d) TEDPL paid compensation of Rs. 3 crore to 'Varde' towards litigation (page 52-58G of P/B). e) Part of plot no. 91 (on which educational premises were to be constructed) had to be given to MIDC in exchange of plot no. 93 which is owned by MIDC as per the consent terms and writ petition no. 6111 of 2011 of the High Court of Mumbai. (page 148-160 of the P/B). 7.1 At this juncture, we refer to clause 9 and clause 10 of the MoU which reads as under: "9. In the event of the party of the First Part not being able to fulfil their part of the contract, for any reason whatsoever within the stipul....
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.... paid; such a transaction cannot be described as speculative transaction within the meaning of section 43(5)'. In S.A. Builders (P.) Ltd. (supra), it is held that 'compensation for delay in execution of the contract work is not a penalty for breach of law but a compensation for breach of contractual obligations and, therefore, same is allowable as deduction' In Murari Lal Ahuja & Sons (supra), it is held that 'compensation paid for breach of contract does not amount to a loss from speculative transaction and would be allowed as business loss.' In the absence of any suggestion of bad faith or fraud, the true principle is that the taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used therein, and this must be determined in accordance with the ordinary rules of construction as held in CIT v. Motors General & Stores (P.) Ltd. (1967) 66 ITR 692, 699 (SC); Devidas Vithaldas & Co. v. CIT, (1972) 84 ITR 277, 284 (SC); CIT v. Puran Das Ranchoddas & Sons, (1988) 169 ITR 480, 488 (AP). To recapitulate the r....