TaxTMI 
TaxTMI 
2025 (2) TMI 1251
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....d the background of the case are that assessee firm has received an amount of Rs.35 Crores as compensation on account of "Out of Court settlement" arising out of long standing dispute for the sale of right in the land/plot bearing S.No.92, admeasuring 14 Acres and 36 Gunthas (72,000 sq. yards) situated at Village, Mauje Mila Taluk, Dist: Thane. The assessee has debited several expenses against the amount received as compensation initially treating as revenue receipts and offered net profit of Rs.6,56,91,849/- in the return of income. The details of these expenses debited were as under:- Construction of Boundry Wall 6,55,78,837 Land 2,32,88,527 Compensation Paid 214,95,00,000 Professional/Consultancy Charges 1,41,15,500 Liability for Cost / Expenses / Damages 3,00,00,000 4. The assessee, M/s. Shelter Developer is a partnership firm which was founded as per partnership deed executed on 30/06/1986 for developing the property in the aforementioned land. The partnership deed consisted of Ms. Amruta Patel, Ms. Varsha Patel and Ms. Heena Patel. These partners had purchased tenancy right in the aforesaid land from Mr. Govind B Baber, Laxmibai Desai and othe....
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....ants of the suit land." 6. Thus, the registered agreement through which the partners of the assessee firm bought the tenancy right from Mr. Govind B Baber, Laxmibai Maruti Desai etc., was found to be untenable as these parties have fraudulently transferred / sold the tenancy rights to the partners of the assessee firm. Despite such an order by the MRTP Court in the year 2007 whereby ruling was given that Mr. Govind B Baber and others that they did not had any tenancy right on the suit land, clandestinely a consent term was filed before the Hon'ble Bombay High Court between Govind B Baber and others and the landlords M/s. Estate Investments Pvt. Ltd., wherein Mr. Govind B Baber and others had consented that they have no tenancy rights on the land and M/s. Estate Investments Pvt. Ltd., is owner of suit land free of tenants. Both the parties collided with each other undermining rights and interests of the assessee firm which assessee firm was under the belief they have purchased the tenancy rights through registered document. Since there was a fraudulent representation before the Hon'ble High Court, the assessee firm had challenged the consent terms before the Hon'ble Supreme Court....
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....n-genuine and accordingly, he added sum of Rs.24,50,78,837/- and computed the gross total income in the following manner:- Business Income 6,62,56,724 Add : Inflated expenses on account of Boundary Wall 6,55,78,837 Add : Compensation paid 14,95,00,000 Add : Provision for cost /expenses/damages 3,00,00,000 24,50,78,837 Gross Total Income 31,13,35,561 9. The ld. CIT (A) after considering various observations and finding of the ld. AO and considering the assessee's submissions dealt each and every issue and gave relief of the addition made by the ld. AO on account of claim of various expenses out of compensation received by the assessee. However, at this stage we not going into the merits of deletion of expenses claimed, albeit we will examine the very taxability of receipts. 10. Though the department has come in appeal against the addition deleted by the ld. CIT (A) and upholding the finding of the ld. AO that the expenses claimed by the assessee are nongenuine. However, the assessee in his cross objection has challenged that the entire compensation receive....
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....Hon'ble Supreme Court had answered this question after observing and holding as under:- "Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross objections befor....
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....answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee." 16. This principle laid down by the Hon'ble Supreme Court has been reiterated and explained further by the Hon'ble Jurisdictional High court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd.,(supra). After considering the judgment of Hon'ble Supreme Court in the case of Goetze India Ltd. vs. CIT reported in (2006) 157 taxmann.com 1 wherein, the Hon'ble High Court observed and held as under:- "21. It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Limited v. Commissioner of Income-tax, (2006) 157 Taxman 1. We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power Company Limited vs. Commissioner of Income-tax (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return....
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.... ld. CIT DR, the Hon'ble Supreme Court in the case of Shriram Investments vs. CIT (supra), the issue before the Hon'ble Supreme Court was whether the revised return filed by the assessee which was barred by limitation u/s.139 (5), does the AO has jurisdiction to consider the claim made by the assessee in the said revised return. The Hon'ble Supreme Court held that the revised return was barred by limitation and ld. AO does not have any jurisdiction to consider the claim by the assessee in the revised return. Nowhere, the Hon'ble Supreme Court has held that the Tribunal does not have the power u/s.254. On the contrary, the Hon'ble Supreme Court observed that the Tribunal has not exercised its power u/s.254 to consider the assessee's claim and instead Tribunal has directed the ld. AO to consider the assessee's claim made in the revised return which was barred by limitation where ld.AO had no jurisdiction to consider the claim. The relevant para 8 & 9 clarifying this issue reads as under:- "8. Coming to the decision of the Tribunal, we find that the Tribunal has not exercised its power under Section 254 of the IT Act to consider the claim. Instead, the Tribunal directed the a....
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....T to entertain such fresh claim for the first time. This submission needs to be stated to be rejected. In the first place, the ITAT was conscious about the fact that this claim was set up by the appellant for the first time before it, and was clearly inconsistent and contrary to the stand taken in the return filed by the appellant for the concerned assessment year including the notings made by the officials of the appellant. Yet, the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal under section 254 of the 1961 Act, by relying on the dictum of this Court in National Thermal Power Co. Ltd. (supra). Further, the ITAT has also expressly recorded the no objection given by the representative of the department, allowing the appellant to set up the fresh claim to treat the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department cannot be countenanced. 11. Learned ASG had placed reliance on the decision of this Court in Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1/284 ITR 323 in support of the objection pressed before us that it ....
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....he year 2015, the consent term was filed in the Hon'ble Supreme Court between Shelter Developers and the landlord M/s. Estate Investments Pvt. Ltd., wherein it was agreed by the parties that the assessee firm will withdraw the "right to sue" by withdrawing various suits which has been stated above. Thus, the compensation which was received was on account of giving up the "right to sue" against the landlords M/s. Estate Investments Pvt. Ltd., 24. Before us ld. CIT DR had relied upon the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Vijay Flexi Containers (Bom) reported in (1990) 186 ITR 693. 25. On the other hand ld. Counsel for the assessee submitted that the judgment of the Hon'ble Bombay High Court in the case of Vijay Flexi Containers related to specific performance of the contract and it was not the case of compensation on account of right to sue. The right to sue is a capital receipt and in support he strongly relied upon the judgment of the Hon'ble Bombay High Court in the case of Sterling Construction and Investments vs. ACIT (2015) 374 ITR 474. 26. Thus, the issue before us is, whether the compensation received by the assessee as per the consent ....
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....se deed in terms of the 1945 agreement, during the previous year. In that view of the matter, no part of the amount was taxable as capital gains." 27. Ergo, mere right to sue is not an actionable claim which cannot be assigned. However, this issue is squarely covered by the judgment of the Hon'ble Bombay High Court in the case of Sterling Construction Investment vs. ACIT (supra), wherein, the decision of CIT vs. Vijay Flexi Containers has been considered at length by the Hon'ble High Court. The facts in that case were that the assessee had entered into an oral agreement with 'ECL' to purchase factory premises to give it on lease and earn lease rent. At the time of finalizing the sale agreement, ECL backed out of said oral agreement. The assessee filed suit before Trial Court of 'specific performance' and to grant of damages for breach of said agreement. The Court passed consent decree, under which ECL agreed to pay 5 crores to assessee by way of damages. The relevant observation and finding of the Hon'ble High Court reads as under:- "23. The question of law was, "whether the right conferred upon the Assessee by the sale agreement of "property of any kind....
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....fused, then, the receipt of monetary sum cannot be taxed as claimed by the Revenue. This is apparent from a reading of paras 8 and 9 of the Division Bench Judgment. In these circumstances, the reliance placed on another Division Bench Judgment of this Court need not be considered. 26. In the present Appeal, the Tribunal failed to note that in this case as well the specific performance of the agreement was refused. It is erroneously held that the claim of the Assessee regarding specific performance had never been rejected by this Court. A reading of the order passed by the Division Bench leaves us in no manner of doubt that such a Decree was expressly denied. The Consent Terms may constitute an agreement or contract between the parties, however, a Consent Decree is passed after the agreement is placed before the Court and the Court applies its mind and records a satisfaction that the terms are not contrary to law or public policy. That they can be accepted and based on that a Decree can be passed. Therefore, it is not an agreement between the parties, by which the Suit was disposed of but on that agreement there is a seal of approval or satisfaction of the Court and in term....
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....ntract for the transfer of immovable property. That power is to be found in section 22 of the Specific Relief Act, 1963. By section 21, the Court has a power to award compensation in certain cases and by sub-section (1) thereof, it is clarified that in a Suit for specific performance of a contract, the Plaintiff may also claim compensation for its breach, either in addition to, or in substitution of such performance. When such relief is claimed in substitution of performance, then, by virtue of sub-section (2) of section 21, the Court can award the Plaintiff compensation even if it decides the specific performance ought not be granted. However, there are specific provisions which the Plaintiff must comply with. Eventually, the jurisdiction to decree specific performance conferred in a Court is discretionary and it is not bound to grant such relief merely because it is lawful to do so (see section 20 of the Specific Relief Act, 1963). 27. The agreement for sale of immovable property itself does not create any right, title or interest in the immovable property, which is subject matter of such agreement but creates a right to obtain performance of the agreement by approaching....