TaxTMI 
TaxTMI 
2019 (8) TMI 1932
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....rds purchase of equity shares of the company Mohan Entertainment Co. Ltd. (MECL) from the Reddy family and not as part of the Project Cost as claimed by the appellant for improving & betterment of its Development Rights of the project Fantasia Business Park at Plot No.4 7, Sector 30-A, Vashi, Navi Mumbai. The CIT(A) has further erred in not accepting the appellant's plea that the value of purchase consideration paid in respect of the equity shares of MECL, acquired from the Reddy family was Rs. 39,99,000/- only, and that the amount of Rs. 59.15 Crores paid to the Reddy Family by the appellant was for improving & betterment of its Development Rights of the project Fantasia Business Park at Plot No.47, Sector 30-A, Vashi, Navi Mumbai. The payment of Rs. 59.15 Crores being part of the Project Cost should have been allowed. 3) Upholding the disallowance of expenditure of Rs. 3.07 crores pertaining to certain finishing work and addressing grievances of the customers post receipt of Occupancy Certificate (OC) vide letter dtd. 29/10/2011 for the project 40 / 30A, Vashi Site Fantasia. 2. The revenue in its cross appeal has raised the following grounds of appeal: 1.....
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....ve (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. 5. At the outset of hearing, the ld. AR of the assessee submits that ground no.1 & 2 raised by assessee are covered in assessee's own case for A.Y. 2012-13 in ITA No. 1208/Mum/2018 dated 31.05.2019. The ld. AR for the assessee submits that the assessee was developing a commercial project "Fantasia Business Park", Plot No. 47, Sector 30A, Vashi, Navi Mumbai. The assessee acquired development right in the project from Mohan Entertainment Company Ltd. (MECL) in the year 2003. The MECL group was controlled by Reddy family. The Reddy Group, who owned MECL entered into series of agreement with assessee group through Late Satish Kashinath Haware (promoter of assessee). During the progress of project the promoter of both the group died. After death of promoter directors of both the group, the successor directors of both the groups started claiming control on the management of MECL through Board which were disputed by the other group i.e. MECL was claimed by Reddy Group and Haware Group. Subsequently, with the intervention of well-wisher and common friends, the e....
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.... appeal raised by the assessee covered in favour of assessee and is liable to be allowed. 7. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer. The ld. DR for the revenue submits that the Tribunal in earlier year has given finding in respect of Rs. 50.84 Crore only and there is no finding for allowance of Rs. 59.15 Crore. 8. We have considered the rival submission of the parties and perused the material available on record. We have noted that the Assessing Officer disallowed the expenses of Rs. 59.15 crore, which was balance amount of total agreed compensation of Rs. 110 Crore paid in earlier years to Reddy family. It is an admitted fact that the Assessing Officer disallowed a sum of Rs. 50.84 crore in A.Y. 2012-13 and remaining amount of Rs. 59.15 crore in A.Y. 2013-14. We have further noted that the amount of Rs. 50.84 crore out of Rs. 110 crore paid in A.Y. 2012-13 was allowed as revenue expenditure in appeal for A.Y. 2012-13. The relevant part of order of Tribunal for A.Y. 2012-13 is extracted below: 29. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Income Tax....
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....sessee was not accepted by Assessing Officer. The Assessing Officer concluded that in the survey conducted under section 133A on the Reddy Group, the investigation wing came to conclusion that the payment is nothing but payment made for acquisition of share of MECL. The Assessing Officer also recorded the bifurcation of payments received by various family members was disallowed. The assessing officer reduced the said expenses from the work-in-progress shown by the assessee. 31. During first appellate stage the assessee filed detailed written submissions, which are recorded by ld. CIT(A)in his order. It was explained that that the assessee paid compensation of Rs. 110 crore to Reddy group. The entire payments consist on account of transfer of share of MECL, settlement of all pending issues in various courts, acquisition of clear development rights regarding the plot where the assessee was undertaking development project and for the smooth functioning of its project. The payments to Reddy group were made in various trenches, as explained in the substituted agreement and were shown to learned CIT(A). It was claimed that on payment of compensation the assessee would got the ri....
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....o significant value remained with MEPL. Due to dispute between the Reddy Group and assessee group, Civil Court restrained the assessee from selling unit or creating any third party interest. The disputes were ultimately settled on payment of Rs. 110 Crore by assessee group to Reddy Group. The Reddy Group while acknowledging the receipt of, part of settlement amount clearly mentioned on the receipt that the payments were made towards development right. The assessee has appropriated a sum of Rs. 39.99 lakhs as paid to Reddy family on account of acquisition of shares. The balance amount of Rs. 109.06 Crore was claimed by the assessee as paid on account of commercial expediency and claim exclusively incurred for the purpose of business. As we have noted earlier that during the survey action on the Reddy Group. The Reddy Group claimed that the said amount was received on account of transfer of shares. As per the substituted agreement executed on 15.02.2012, the assessee agreed to pay Rs. 110 Crore to Reddy Group against transfer of equity share of MEPL, settlement of all pending litigation before various Forums, acquisition of clear development right and to buy peace. The ld. AR of the ....
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....paces for surrender of their rights, therein could not be set to be disallowed on the grounds of such payments having being made for extraneous considerations. Assessee has a plausible explanation for making such payments of compensation to protect its business interest. While it is true that there was no contractual obligation to make payment, it is plain that the assessee was also looking to build its own reputation in the real estate market. The court further held that the recipients treated the said payments as capital gains in their hands in their returns would not be relevant in deciding the issue whether the payment by the assessee should be treated as business expenditure. The Hon'ble Delhi High Court relied on the decision of Shahazada Nand & Sons (supra), Nainital Bank Ltd. (62 ITR 638), Sharada Binding Works (102 ITR 187). 38. In CIT Vs. Nainital Bank Ltd. (supra) the Hon'ble Supreme Court held that "a large quantity of jewellery pledged with assessee bank by its constituents were stolen by dacoits from premises of bank. Bank paid the market value of the jewellery pledged by the constituents and claimed the same as expenditure which is allowed" 39. ....
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....during the course of submission, made his submission that he is not pressing this ground of appeal. Therefore, this ground of appeal is dismissed as not pressed. 11. In the result, appeal of the assessee is partly allowed. ITA No. 4021/Mum/2019 by revenue 12. At the outset of hearing, the ld. AR of the assessee submits that grounds of appeal raised by revenue are covered in assessee's group in case for A.Y. 2009-10 & 2011-12 in ITA No. 3172/Mum/2016 dated 31.08.2018, copy of which is placed on record. The ld. AR of the assessee further submits that similar issue was decided in assessee's other group case for A.Y. 2012-13 in ITA No. 7155/Mum/2016 dated 10/10/2018. 13. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer. 14. We have considered the rival submissions of the parties and have gone through the order of the lower authorities. We have also gone through the order of the Tribunal in assessee's group case in ACIT vs. M/s Haware Constructions Pvt. Ltd. for AY 2009-10 & 2011-12 in ITA No.3321/Mum/2016 dated 31.08.2018. We have also perused the order of Tribunal in assessee's group case in M/s Haware Engineers Pvt Ltd. vs. DCIT in....
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.... another decision for the revenue. The decision in Neha Builders Pvt. Ltd.(supra) is for the assessee, whereas the decision in Ansal Hsg. Finance & Leasing Co. Ltd., (supra) is for the Revenue. The Hon'ble Supreme Court in the case of CIT vs. Vegetable Products 88 ITR 192 (SC) has held that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted." In view of the above position of law, we shall follow the decision in Neha Builders Pvt. Ltd.(supra). 4.5.1. We now come to the relevant provisions in the Act. The following subsection (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017, w.e.f. 01.04.2018: "(5) Where the property consisting any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be ....
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.... head "Income from house property", or not. Admittedly, the assessee on 31.03.2013 was holding stock-in-trade of vacant unsold completed flats/shops of Rs. 87,46,129/-. The A.O drawing support from the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180 (Del), had concluded that the 'ALV' of the aforesaid vacant properties held by the assessee as stock-in-trade of its business of real estate developer, was liable to be assessed under the head "Income from house property". As the assessee failed to furnish the details as regards the 'Annual Rateable Value' of the aforementioned properties, therefore, the A.O estimated the 'ALV' of the said properties @ 8.5% of the aggregate cost of their construction and worked out the same at Rs. 7,43,420/- (i.e 8.5% of 87,46,129/-). Further, after allowing the statutory deduction under Sec. 24(b) @ 30% of the ALV of Rs. 7,43,420/-, the A.O brought the balance amount of Rs. 5,20,394/- to tax under the head "Income from house property". 9. We have deliberated at length on the issue under consideration, in the backdrop of the observations of the lower authoritie....
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.... Also, we find that the Tribunal while disposing off the appeal in the case of the 'sister concern' of the assessee in Haware Engineers and Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016, dated 10.10.2018], had concluded that if an immovable property in the shape of flats/shops is held by the assessee as stock-in-trade of its business, then it becomes part of its trading operations, and any income derived there from would be its 'business income' and not 'Income from house property'. On the basis of the aforesaid deliberations, the Tribunal while disposing off the aforesaid appeal had vacated the addition of the 'ALV' that was made by the lower authorities in respect of the flats/shops which were held by the assessee before them as stock-in-trade of its business of a real estate developer. In fact, the Tribunal while concluding as hereinabove, had primarily relied on the view earlier taken by it in the case of another 'sister concern' of the assessee viz. ACIT Vs. Haware Construction Pvt. ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018]. Apart there from, the Tribunal had also drawn support from the orders of the coordinate benches of t....