Income Tax Appellate Tribunal - Pune
Kailash B Wani, Pune vs Department Of Income Tax on 30 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri R.K. Panda, Accountant Member
and Shri Vikas Awasthy, Judicial Member
ITA No. 858/PN/2013
(Assessment Year : 2008-09)
ITO, Ward-3(1), Pune .. Appellant
Vs.
Kailash B. Wani,
925/A, Trikaya House,
Dindayal Hospital Lane,
F.C. Road, Pune - 411 005 .. Respondent
PAN No.ACPW9291M
Appellant by : Shri Nikhil Pathak &
Shri Suhas P. Bora
Department by : Shri Aseem Sharma
Date of Hearing : 26-05-2015
Date of Pronouncement : 30-06-2015
ORDER
PER R.K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 27-11-2012 of the CIT(A)-II, Pune relating to Assessment Year 2008-09.
2. Grounds of appeal No. 1 to 3 by the Revenue read as under :
"(1) The learned Commissioner of Income-tax (Appeals) erred in deleting the receipt of Rs.3 crores through Shri.Sanjay Nemichand Lohade without appreciating the fact that out of land of 41 ares, 9 ares land belonged to the assessee and for the balance 32 ares the assessee had entered into Memorandum of Understanding (MOU) with Shri.Pradeep Dorje in the year 2000 and the MOU for the entire 41 ares has been signed by the assessee as consenting party, the sellers being the Kadam family members and the purchaser being M/s.Fullmoon Housing Pvt. Ltd.
(2) The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate the fact that the payment of Rs.3 crores has been made to Shri.Sanjay Nemichand Lohade on behalf or at the instance of the assessee as it is the assessee who has entered into MOU dated 16.05.2007 with Fullmoon Housing Pvt. Ltd. and 2 Shri.Sanjay Nemichand Lohade was only the constituted attorney on behalf of Shri.Dorje for withdrawing the civil suit. (3) The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate that except the payment made to the members of Kadam family as land owners, the remaining payment ought to have come in the hands of the assessee and not any other person and as such, out of total consideration of MOU of Rs.9,26,46,600/-
after deducting Rs.3,40,00,000/- paid to the land owners, the remaining amount has been received by assessee either on behalf of or at the instance of the assessee."
3. Facts of the case, in brief, are that the assessee is an individual and engaged in the business of trading in land and property development. He filed his return of income on 25-09- 2008 declaring total income of Rs.3,14,36,020/-. During the course of assessment proceedings the Assessing Officer noted that a survey action u/s.133A of the I.T. Act was conducted on 12-03-2008 on the assessee and his statement on oath was also recorded. During the course of survey an MOU was impounded along with a loose paper u/s.133A(3) (ia) of the I.T. Act. As per the MOU and based on the statement recorded the assessee had offered an additional income of Rs.2,11,46,600/- and as per one paper impounded as per Bundle No.6, additional amount of Rs.39 lakhs was also disclosed. Further, for omission or error an amount of Rs.42,214/- was also offered for tax in the statement recorded of the assessee on 12-03-2008. Thus, the total disclosure of Rs.2,58,88,814/- was made by the assessee in the statement recorded. The assessee while honouring the disclosure of such amount of Rs.2,11,46,600/- and Rs.39,00,000/-, however, did not offer the amount of Rs.42,214/- which was on account of any omission or error. The AO made addition of this amount which was accepted by the assessee before CIT(A) and therefore we are not concerned with the above addition.
3
4. During the course of assessment proceedings the Assessing Officer observed from the MOU, which was impounded during the course of survey on 12-03-2008, that the same is dated 16-05-2007 and it is between M/s. Full Moon Housing Pvt. Ltd. through their directors Shri Arvind Premchand Jain and Shri Shrawan Devakinandan Agarwal on one side as purchaser and the assessee as the party of 2nd part as the seller. As per the 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/-. As per the MOU, the amount of Rs. 9,26,46,600/- is to be given to the assessee which is inclusive of the following :
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/-
-------------------------
The AO therefore asked the assessee to explain with supporting evidences about the payments made to others by assessee or else to explain why the entire amount should not be added to the income of the assessee.
4.1 The assessee submitted that Smt. Sulabha Satam had assigned her rights in the property admeasuring 09 Ares to assessee for a consideration of Rs.31,50,000/-. The money has been paid to the various parties as per the MOU and he has correctly offered to tax the cash received by him of an amount of Rs.2,11,46,600/- which was declared by him during the course of survey.4
5. However, the AO was not satisfied with the above explanation of the assessee. He observed that the MOU dated 16-05-2007 executed between M/s. Full Moon Housing Pvt. Ltd, the purchaser and the assessee as the seller whereby the purchaser agreed to purchase 41 Ares of land at S.No 5/1-A for a total consideration of Rs. 9,26,46,600/- in the following manner:
Sl.No. Amount Particulars
1 Rs. 3,40,00,000/- To Kadam sisters (Original
owners of the land)
2 Rs. 25,00,000/- For expenses as stamp duty etc.
3 Rs. 50,00,000/- To Shri. Kailash B Wani, the
appellant/ as compensation)
4 Rs. 3,00,00,000/- To Shri. Sanjay N Lohade (For
surrendering rights)
5 Rs. 2,11,46.600/- To be paid to the assessee in
cash
Rs. 9,26,46,600/- Total
5.1 The Assessing Officer further noted that during the assessment proceedings in order to examine the veracity of the MOU dated 16-05-2007 the statement of the persons mentioned in the said MOU including Shri Sanjay N. Lohade, who was shown to have been paid Rs. 3 crores by the purchaser were recorded. While the genuineness and propriety of the payments to various persons were acceptable, the AO noted that the payment made to Mr. Sanjay N Lohade of Rs. 3 crores was doubtful. The Assessing Officer held that the money of Rs. 3 crores paid to Mr. Lohade belong to the assessee and the purchaser M/s. Full Moon Housing Pvt. Ltd paid the amount on behalf of the assessee. The Assessing Officer also noted that the assessee held all the rights in respect of the land sold as per MOU dated 16-05-2007 to M/s Full Moon Housing Pvt. Ltd and 5 that Shri. Lohade had not contributed in any way in the negotiation of the deal except for withdrawing the court suit No. 1006/1996. The Assessing Officer while disallowing the payment of Rs.3,00,00,000/- to Mr. Lohade assigned the following reasons as per para 7.6 to 7.8 of the assessment order which has been summarized by CIT(A) at page 17 of the appeal order as under :
"1) The assessee by MOU dated 16/05/2007 agreed to transfer S. No. 5/1A admeasuring 41 Ares to M/s. Full Moon Housing Pvt. Ltd for aggregate consideration of Rs. 9,26,43,600/-.
2) There was special power of attorney executed by Pradeep Dhorje on 16/07/2001 in favour of Shri. Sanjay Lohade constituting him as his attorney for Civil Suit No. 1006/1996.
As per Assessing Officer his appointment was made at the behest of the assessee.
3) The MOU signed by the assessee, Shri. Pradeep Dhorje, Shri Sanjay N Lohade on 16/07/2001 did not mention any amount to be paid to Shri. Sanjay Lohade either by Pradeep Dhorje or the assessee.
4) As per the statement recorded u/s. 131 on 18/11/2010 Shri. Sanjay N Lohade has stated that he was to receive Rs. 5 Lacs from the assessee for some kind of services done by him, relating to requirement of PMC. Albeit, mention of this is not found anywhere in any document
5) The assessee brought Shri. Sanjay Lohade into the picture to deal with the Civil Suit bearing 1006/96 filed by Shri. Pradeep Dhorje against the land owners.
6) The said Sanjay Lohade only filed documents, applications for withdrawing the said Civil Suits from the court.
7) Shri. Sanjay Lohade stated that in the entire deal of transfer of land to M/s. Full Moon Housing Pvt. Ltd. he has not signed any of the documents.
8) In the year 2001 when Shri Pradeep Dhorje signed the power of attorney in favour of Sanjay Lohade there was no right created in favour of Shri. Sanjay Lohade. Neither there is any mention about the consideration to be paid to him.
9) Even in the transfer of land, his role is only limited to withdrawing the Civil Suit from the court in terms of special powers of attorney and except that said Lohade has done nothing."
6. Before the CIT(A) the assessee submitted that Mr. Pradeep Kumar Dhorje had initially i.e. vide agreement on 1-10-1995 agreed to purchase the entire land of 81 Ares at S.No 5/1A as 6 well as land measuring 80 Area at S.No.5/1B totalling to 161 Ares from the original land owners namely Kadam sisters/family. However, despite the existing agreement, the Kadam sisters/family sold 80 Ares of land of both the aforesaid Survey nos. to 8 different buyers each one buying 10 Ares. It was submitted that Mr. Pradeep Dhorje held the deal to be illegal because of the existing MOU dated 01-10-1995, being in his favour and since Kadam family could not have executed the sale deed on 08-12-1995, therefore, Mr. Dhorje filed the suit No 1006/1996 against the Kadam family and the eight buyers. It was further submitted that on 18-08-1999 a settlement was arrived at between Mr. Dhorje and the eight buyers who together purchased land at S.No 5/1-B totaling to 80 Ares by which Dhorje gave his right of specific performance with respect to the 80 Ares of land. However, the civil suit with respect to the remaining land at S.No 5/1A-81 Ares continued. During the pendency of the special suit, Mr. Dhorje agreed to sell 32 Ares of land at S.No 5/1A to the assessee on 11-10-2000 for Rs. 6,00,000/- and in the same MOU also transferred the right in respect of the Special Suit. Thereafter, on 16-07-2001, Mr. Dhorje executed MOU with the assessee and Mr.Sanjay Lohade and the power of attorney in favour of Mr.Sanjay Lohade by which mention to the effect that Mr.Sanjay Lohade agreed to obtain development rights and to purchase the said land at Sr. No 5/1A from the Kadam family either in his own name or in the names of the nominees and the assessee also agreed for the transaction to be entered into by the said Kadam family with Mr.Sanjay N. Lohade for the said land and Mr. Lohade was also given specific power of attorney on 16-07-2001 itself. Thus, the assessee after purchasing 32 Ares from Mr. Dhorje on 11-10- 7 2000 purchased 9 Ares out of the 81 Ares of S.No.51/1A from Smt.Satam Sulbha on 11-08-2005 for total consideration of Rs.31,50,000/- and also executed development agreement. Thus, the entire land of 41 Ares was the subject matter of civil suit No 1006/1996 and without its settlement the assessee could not have sold the land and the Kadam family were seriously contesting the civil suit. The assessee as well as Mr. Dhorje found themselves incapable to continue with the legal battle which was consuming both time and money and thus out of business prudence Mr. Sanjay Lohade was brought into the matter who assured to do everything necessary including attending the complicated litigation and also obtained the development rights in respect of the land under suit. It was in such a situation that the assessee and Mr. Pradeep Dhorje executed the power of attorney as well as MOU dated 16-07- 2001 by which Mr. Lohade acquired control over the civil suit as well as the land involved in the suit. The assessee submitted that in due course after a period of 6 years due to Mr. Lohade's persistent efforts he could bring the Kadam family to amicable settlement in the year 2007 and the assessee agreed to enter into the MOU dated 16-05-2007 and accordingly Mr. Lohade agreed to give up his right of obtaining the development agreement. It was submitted that in view of the aforesaid fact and circumstances that the purchaser M/s. Full Moon Housing Pvt. Ltd agreed to pay the necessary compensation of Rs. 3 crores to Mr. Sanjay Lohade and, therefore, the Assessing Officer's observation that the payment being made to Mr. Lohade at the behest of the assessee is factually not correct. It was further contended that the Assessing Officer's noting that Mr. Sanjay Lohade did not enjoy or had any right in the property 8 transacted and eventually sold the same to M/s. Full Moon Housing Pvt. Ltd. is not correct. It was explained that Assessing Officer's observation that Mr. Lohade had no locus stand! is equally incorrect and wrong as Mr. Lohade was given not only the power of attorney but also the right to obtain the development agreement and purchase the land in his name. It was submitted that Mr. Lohade besides having the right in the property though not in presentee but on attaining and getting the civil suit concluded which took six years to settle the issue and it was this contribution of Mr. Lohade which was evaluated by the purchaser who independently on its own agreed to pay Rs. 3 crores at its own behest apart from the amount of Rs.3,40,00,000/- to the Kadam family and the balance to the assessee. It was submitted that in the statement recorded u/s 131 by the Assessing Officer, Mr. Lohade had spontaneously admitted to have received Rs. 3 crores from the purchaser and that the same had been shown as advance in his books of account. It was emphasized that the Assessing Officer had erroneously interpreted the answer given by the Director of Full Moon Housing Pvt. Ltd, Mr. Arvind Jain to suggest that whatever the payments made by him was at the instance of the assessee. In fact the correct interpretation should have been that the assessee being the vendor had to sell the land which was in fact not registered in his name as title holder and the assessee was also fully aware of the interest of the Kadam family as well as Mr.Lohade and, therefore, the assessee had to agree for payment of such purchase consideration to the original land owners i.e. the Kadam family and to Mr. Lohade who had vested interest in the property because of the circumstances of the case. It was contended that the Assessing Officer has accepted the payment 9 of Rs. 3,40,00,000/- made to the Kadam family who was also stated to have been given at the behest of the assessee and the same answer given in the case of payment to Mr. Lohade has been erroneously interpreted by the Assessing Officer. The assessee drew the attention of CIT(A) to the MOU between the assessee and Full Moon Housing Pvt. Ltd which was found during the course of survey which also included payment of Rs.2,11,46,600/- which was not reflected in the final sale agreement, which the Assessing Officer has taxed in the hands of the assessee on the basis of the aforesaid MOU and considered the same as true and genuine. The assessee drew attention of Ld.CIT(A) to para 2 of the MOU which indicated that the assessee and Mr. Dhorje had assigned all their rights, title and interest to Mr.Sanjay Lohade vide the MOU dated 16-07- 2001 along with the rights and powers of civil suit no. 1066/1996. It was accordingly contended that Mr. Lohade has thus some right in the property which got ultimately transferred to the purchaser Full Moon Housing Pvt. Ltd and as per Clause 3 of the MOU, it is clearly mentioned that the assessee would be responsible to pay the amount to Mr. Lohade for withdrawing the civil suit along with his rights, title in the property and accordingly out of the total consideration of Rs. 9,26,46,600/- it was agreed that Rs. 3 crores would be paid to Mr. Lohade. Accordingly the purchaser paid the aforesaid amount directly to Mr. Lohade. The assessee accordingly requested the CIT(A) to delete the addition.
7. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition made by the AO by observing as under :
10
"5.2 The facts brought on record indicate that a survey action u/s 133A was carried out on the appellant on 12-3-2008 wherein the Memorandum of Understanding or the MOU dated 16-05-2007 was found and impounded. The said MOU was executed between Full Moon Housing Pvt Ltd (FMHPL) and the appellant, and the purchaser and the appellant as the seller of 41 Ares of land at S.No 5/1A for a total consideration of Rs. 9,26,46,600/-, the details of which are as under:
1. Rs. 3,40,00,000/- To Kadam sisters (Original owners)
2. Rs. 25,00,000/- For expenses as stamp duty
3. Rs. 50,00,000/- To Shri. Kailash B Wani ( as mobadla)
4. Rs. 3,00,00,000/- To Shri. Sanjay N Lohade (For surrendering rights)
5. Rs. 2,11,46,600/- To be paid to the assessee in cash Rs. 9,26,46,600/-
The appellant on the basis of the notings made in the MOU which included payment in cash offered an additional income of Rs. 2,11,46,600/- during the survey action along with Rs. 39 lacs based on a loose paper No. 6. The Assessing Officer has examined Shri. Sanjay Lohade to whom payment of Rs. 3 crores were made and Shri. Arvind Jain, Director of FMHPL under oath u/s 131 recorded their statements. The Assessing Officer also examined the Kadam sisters who were also paid an amount of Rs.3,40,00,000/-. The Assessing Officer has not questioned the genuineness of the payments made to the persons against whom the aforesaid amount had been mentioned except that of Shri. Sanjay N. Lohade who was paid Rs. 3 crores by the purchasers. The Assessing Officer held the aforesaid payment lawfully belonged to the appellant and that the purchasers had made the payment on behalf of the appellant. The Assessing Officer after examining the MOU's for the said property and other related documents inferred that in the transfer of land, the role of Shri Lohade was limited to the withdrawal of the civil suit from the court in terms of the power of attorney. The fact brought on record do indicate the existence of litigation for the said property and which has continued for a pretty long time of nearly 12 years during which several negotiations and MOU's were executed by Shri. Pradeep Dhorje and the appellant, through which Sanjay N Lohade was given the power of attorney and also the development right by Shri. Dhorje and the appellant. The appellant, it appears had agreed to the inclusion of Shri. Lohade so as to solve the complicated litigation ongoing since a few years with Kadam family, the owners of land. The MOU dated 16-07- 2001 clearly indicates the importance of the role of Shri. Lohade so as to bring the matter to an amicable settlement which finally took place in 2007 wherein the MOU dated 16-5-2007 was drawn and which was subsequently impounded during the course of the survey action on 12-03-2008. The Assessing Officer in arriving at the conclusion of the role of Shri. Lohade has relied heavily on the statements recorded u/s 131 during the assessment proceedings on 19.11.2010 & 29.11.2010 of Shri. Lohade and Shri. Arvind Jain, the Director of the Company Full Moon Housing Pvt. Ltd the purchaser. The responsibilities fixed upon Shri. Lohade could not be totally disregarded in the given facts of the case. The MOU dated 16-7-2001 has not been considered by the Assessing Officer and has not examined the same during the assessment proceedings as Shri. Lohade had been given the right to obtain the development agreement and purchase of the said land in his name apart from attending the litigation involved in civil suit No. 1006/1996 at his own cost and responsibility, thus the observation of the Assessing Officer that Shri. Lohade had no 11 locus standi is factually not correct. The purchaser i.e. Full Moon Housing Pvt. Ltd was also fully aware of the facts of the case before the MOU dated 16-05-2007 was executed. In the statement recorded u/s 131 of Shri. Arvind Jain, the Director of the purchaser company before the Assessing Officer, it has never denied regarding the payment to Shri. Sanjay N Lohade rather reference to the negotiation for the settlement of the amount to be paid to Shri.Lohade has been mentioned as Shri. Lohade was expecting an amount of Rs.4 crores and the same was settled at Rs. 3 crores. The reference of Q. No. 26 of the statement of Arvind Jain, the Director of FMHPL, the purchasers suggests that the payment made by them were at the instance of the appellant which has erroneously been interpreted by the Assessing Officer to be made on behalf or the appellant. The other answers given by Shri. Jain clearly indicates the involvement of the appellant in the said transaction and also the role of the other persons have been highlighted by the purchaser. This is not a case where the purchaser was not aware of the role of different persons connected with the land such as the interest of the Kadam family and also that of Sanjay Lohade. Thus the inference drawn by the Assessing Officer that the payment to Shri. Lohade was made at the behest of the appellant is apparently not correct. The aforesaid land which is the subject matter of the issue involved had a history which has not been looked into and considered by the Assessing Officer while drawing the inference regarding Shri Lohade. The fact on record do indicate that Shri. Lohade had interest in the property and in clause 3 of the MOU dated 16-7-2001 it is clearly mentioned that the appellant could be responsible to pay to Shri. Lohade for withdrawal of the civil suit and the rights / title in the said property. It is also relevant to point out the fact that the MOU dated 16-5-2007 found during the course of survey action u/s 133A has formed the basis of the declaration of additional income by the appellant, the receipt of which was not recorded in the final sale agreement. The purchaser M/s FMHPL has made the payment to Shri. Lohade by way of cheque on different dates and which had also been confirmed by Shri. Lohade during the assessment proceedings. Moreover, the Assessing Officer has also accepted the contents of the MOU as true and correct for making the addition and also the payment to other related persons to the transaction except the payment made to Shri. Lohade held as for non-business consideration is apparently' not correct in view of the fact and circumstances of the case. 5.3 During the assessment proceedings of Shri. Sanjay Lohade, the Assessing Officer in view of the direction of the Addl. CIT, Ahmednagar Range u/s 144A held the aforesaid amount of Rs. 3 crores to be taxable as brokerage or commission in the hands of Shri. Lohade and thus, the role of Shri. Lohade inthe transaction has not been denied. In the appeal preferred by Shri. Lohade before the CIT(A)-I Pune, in its appellate order dated 02-11-2012, the Ld. CIT has upheld the addition .made by the Assessing Officer treating the receipts of the amount of Rs. 3 crores as taxable and treated as earnings from commission and brokerage by the Assessing Officer. Thus, the contention of the appellant has considerable force that the factual points stated in the MOU found during survey, the A.O. has accepted the contents as true and correct for making the addition of Rs. 2,11,46,600/- and when the MOU is considered to be true and genuine, to hold the payment of Shri Lohade to be for non-business consideration is totally incorrect. The document found during survey has to be considered as a whole and those facts which favour the appellant cannot be totally ignored and the notings on the document cannot be overlooked. 12
The facts brought on record do indicate that the purchaser, FMHPL after evaluating the interest in the lands of Shri Lohade and after negotiating for the amount, paid the amount on their own behest as against the same held to be paid on behalf of the appellant. In any case the entire amount has been taxed in the case of Shri Lohade as discussed above.
5.4 In view of the above facts the addition made by the Assessing Officer is directed to be deleted and ground of appeal No. 3 is liable to be allowed."
8. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
9. The Ld. Departmental Representative heavily relied on the order of the AO.
10. The Ld. Counsel for the assessee on the other hand while heavily relying on the order of CIT(A) submitted that the Kadam family, the original land owners were the owners of 161 Ares of land. They entered into an MOU with Mr.Pradeep Dhorje on 01- 10-1995 who agreed to purchase the entire land of 81 Ares situated at Survey No.5/1 as well as entire land of 80 Ares situated at Survey No.5/1B Ares totaling to 161 Ares from the Kadam family. Inspite of this existing agreement the members of the Kadam family sold 80 Ares of land on Survey No.5-1/B on 08-12-2005 to 8 different buyers each one buying 10 Ares. Mr.Pradeep Dhorje filed a civil suit bearing No.1006/1996 against the Kadam family as well as those 8 buyers for specific performance on the basis of MOU dated 01-10-1995 as according to him the deal was illegal in view of the MOU dated 01-10-95 and the Kadam family could not have executed the sale deeds on 08-01-1995. Thereafter on 18-08-1999 on the basis of MOU a settlement was arrived between Pradeep Dhorje and 8 buyers who together had purchased the land at Survey No.5/1B totaling to 80 Area by which Mr.Pradeep Dhorje gave 13 up his right of specific performance in respect of said land in Survey No. 5/1B admeasuring 80 Ares. The civil suit however continued with respect to the remaining land at Survey No. 5/1A, i.e. 81 Ares. In the existence of this special suit Mr. Pradeep Dhorje agreed to sell 32 Ares of the said land in Survey No5/1A to the respondent on 11-10-2000 for Rs. 6 lakhs and in the same MOU he also transferred his right in respect of the civil suit 1006/1996 in favour of the respondent. In due course on 16-07-2001 Mr. Pradeep Dhorje executed MOU with the respondent and Mr. Sanjay Lohade and also the Power of Attorney in favour of Sanjay Lohade. As per MOU at para 9 on page 4 there is a mention to the effect that the respondent and Sanjay Lohade as well as Kadam family had made the negotiations under which Sanjay Lohade agreed to obtain the development rights and/or to purchase the said land at Survey No.5/1A from the Kadam faily either in his own name or in the name of his nominees. Mr. Pradeep Dhorje accorded his consent and agreed to execute the required deeds and documents as may be necessary for Mr.Sanjay Lohade in respect of said land at Survey No.5/1A. The respondent also agreed for the transactions to be entered into by the said Kadam family with Mr.Sanjay N. Lohade for the said land. In addition to this MOU, Mr. Sanjay Lohade has also been given the specific power of attorney on 16/07/2001 i.e. on the same date. In due course said Mr. Sanjay Lohade did everything necessary in the matter in negotiating the land deal as well as agreed to withdraw the said special civil suit No. 1006/1996 without which further finalization of deal would not have not been possible. The respondent had purchased 9 Ares out of 81 Ares of S. No. 5/1A from Smt. Satam Sulbha on 11/8/2005 and 14 also executed development agreement with the said Smt. Sulbha Satam on 08/05/2006, for the agreed consideration of Rs.31,50,000/-. The respondent also purchased 32 Ares from Mr. Pradeep Dhorje on 11/10/2000 as stated earlier. It is this entire land of 41 Ares which was the subject matter of Civil Suit No. 1006/1996. In order to sell this land of 41 Ares it was necessary to have the settlement of the said Civil Suit No. 1006/1996. The original land owners i.e. Kadam families were the main hurdle or obstacle who were hostile and seriously contesting the Civil Suit.
11. Mr. Pradeep Dhorje and the respondent found themselves incapable to continue with this legal battle almost endlessly for a long time and from the view point of the assessee he had to pay a lot of toll both in monetary terms and loss of business. It was therefore purely out of business prudency the respondent and Mr. Pradeep Dhorje had to bring in Mr. Sanjay Lohade who assured to do everything necessary for attending the complicated litigation i.e. Civil Suit No. 1006/1996 including to deal with the original land owners i.e. Kadam family. Mr. Sanjay Lohade had also agreed to obtain the development right in respect of the land under suit. The respondent and Mr. Pradeep Dhorje accordingly executed power of attorney as well as MOU on 16/07/2001 by which Mr. Sanjay Lohade virtually acquired irrevocable control over the said Civil Suit as well as the land involved in the said Suit. In due course, i.e. after a period of 6 years Mr. Sanjay Lohade could bring the Kadam family to amicable settlement in the year 2007 and simultaneously respondent agreed to enter into MOU dated 16/05/2007. Mr. Sanjay Lohade accordingly withdrew the said Civil Suit No. 1006/1996. Mr. Sanjay Lohade 15 also agreed to give up his right of obtaining development agreement in his favour as agreed by the respondent and Mr. Pradeep Dhorje as per MOU dated 16/07/2001.
12. The Ld. Counsel for the assessee drew the attention of the Bench to the MOU dated 16-05-2007 which was found during the course of survey on 12-03-2008 which shows the bifurcation of the amount of Rs.9,26,46,600/-. As per the bifurcation an amount of Rs.3,40,00,000/- to be paid to Kadam sisters and an amount of Rs.25 lakhs towards expenses such as stamp duty, Rs.50 lakhs to Mr.Kailash N. Wani, i.e. the assessee towards compensation, Rs. 3 crores to Mr. Sanjay Nemichand Lohade for surrendering right and an amount of Rs.2,11,46,600/- to the assessee in shape of cash. He submitted that the assessee has offered the cash component of Rs.2,11,46,600/-. The first 3 items are accepted by the AO. The only dispute is regarding the amount of Rs.3 crores paid to Mr. Sanjay Nemichand Lohade for surrendering his rights. He submitted that the assessee sold the land to M/s. Full Moon Housing Pvt. Ltd. who wanted to purchase the plot free of any defect. Therefore, it was the purchaser who itself has decided the terms of payment including the amount to be paid to Kadam family, Mr.Sanjay Lohade and to the assessee. He submitted that the observation of the AO that Mr.Sanjay Lohade had no locus standi is completely wrong because he was given not only the power of attorney but was also given the right to obtain the development agreement and purchase the said land in his name. The AO completely ignored the civil suit pending vide Civil Suit No.1006/1996. Since Sanjay Lohade has effective control over the entire litigation as well as the land and since the respondent 16 could not have entered into MOU with M/s. Full Moon Housing Pvt. Ltd. and since all those complicated issues involved in the civil suit including bringing the Kadam family to the settlement terms are finally set at rest, therefore, it is incorrect to say that the amount of Rs.3 crores paid to Sanjay Lohade was at the instance of the assessee.
12.1 He submitted that even if the income is treated as business income, then also expenditure of Rs.3 crores will be allowed as expenditure u/s.37(1) of the I.T. Act towards furtherance of business.
12.2 Referring to the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Sales Magnesite Pvt. Ltd. reported in 214 ITR 1 he submitted that the Hon'ble High Court in the said decision has held that the payment of compensation by the assessee to its erstwhile sole selling agent for loss of the sole selling agency was an allowable deduction u/s.37 of the I.T. Act. He submitted that the AO has accepted the contents of the MOU found during the course of survey as true and correct for making the addition and also allowed the payment to other related persons to the transaction except payment made to Sanjay Lohade. He submitted that the amount of Rs.3 crores has been taxed in the hands of Sanjay Lohade as per the direction of the Addl.CIT, Ahmednagar u/s.144. The same has been upheld by the CIT(A) vide appeal order dated 02-11-2012. He submitted that the document found during the course of survey has to be considered as a whole and those points which favour the assessee cannot be totally ignored and the notings on the document cannot be overlooked. For the above proposition he relied on the decision of the Pune Bench of the Tribunal in 17 the case of Chander Mohan Mehta Vs. ACIT reported in 71 ITD 245 where it has been held that the statement had to be considered and accepted as a whole and Revenue could not be permitted to use that part of statement which was beneficial to it and reject the other part of statement which was detrimental to it. The Ld. Counsel for the assessee also relied on the following decisions :
i. Ahmed G.H. Ariff Vs. CWT (1970) reported in 76 ITR 471 (SC) ii. Pandit Lakshmi-kant Jha Vs. CWT reported in (1973) 90 ITR 97 (SC) iii. CIT Vs. Tata Services Ltd. reported in (1980) 122 ITR 594 (Bom.) iv. CIT Vs. Sterling Investment Corporation Ltd. reported in (1980) 123 ITR 441 ( Bom.) v. CWT Vs. Ashokkumar Ramanlal reported in (1967) 63 ITR 133 (Guj.) He accordingly submitted that the order of Ld.CIT(A) being in accordance with law has to be upheld and the grounds by the Revenue should be dismissed.
13. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer 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 :
18
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/-
-------------------------
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 genuine while he doubted the amount of Rs.3 crores paid to Mr. Sanjay Nemichand Lohade for surrendering his rights. While doing so, The AO was of the opinion that the amount of Rs. 3 crores was paid to Shri Lohade at the behest of the assessee and in fact this money belongs to the assessee. Further according to the AO Mr. Sanjay Nemichand Lohade did not enjoy or had any right in the property transacted which was eventually sold to M/s. Full Moon Housing Pvt. Ltd. According to the AO in the transfer of land the role of Mr. Sanjay N. Lohade was limited to the withdrawal of the civil suit from the court in terms of the powers of attorney. It is also the contention of the AO that Mr. Sanjay N. Lohade had no locus standi and he had no effective control over the entire litigation as well as the land. In view of the above and in view of the reasonings given in the preceding paragraphs the AO added the amount of Rs.3 crores in the hands of the assessee.
1913.1 We find the Ld.CIT(A) deleted the addition on the ground that the AO had erroneously interpreted the MOU as well as the statements of Mr. Arvind Jain, Director of M/s. Full Moon Housing Pvt. Ltd., i.e. the purchaser and the statement given by Mr. Sanjay N. Lohade. According to the Ld.CIT(A) when the AO has accepted the other contents of the MOU as genuine he should not have doubted the payment made to Mr. Sanjay N. Lohade as for non business consideration. Further, the CIT(A) also observed that the amount of Rs. 3 crores received by Mr. Sanjay N. Lohade has been treated as taxable being earning from commission and brokerage by the AO as per the direction of the Addl.CIT, Ahmednagar Range which has been upheld by the CIT(A). It is also the observation of the CIT(A) that the document found during survey has to be considered as a whole and those facts which favour the assessee cannot be totally ignored. 13.2 We do not find any infirmity in the order of the CIT(A) deleting the addition. As mentioned earlier, the MOU was found during the course of survey. Out of the 5 entries totalling to Rs.9,26,46,600/- the amount of Rs.2,11,46,600/- received by the assessee in cash was offered by him as additional income during the course of survey. The assessee has honoured this and included the same in his return of income. The Ist 3 items are accepted by the AO as genuine, therefore, we fail to understand 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. 20 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 under :
"Q.25 I hope that with the break you may have remembered the facts. You are given a further opportunity to state the details about the discussions with Shri Lohade?
Ans. Sri Lohade was expecting an amount of Rs. 4 crores and we were ready for a payment upto Rs. 3 crores."
13.5 Similarly, we find Mr. Sanjay N. Lohade in his reply to Question Nos. 16, 17, 22, 23, 24 and 25 has replied as under :
"Q.16 Give details of Spl.Civil Suit No.1006/1996 before the Civil Judge, Sr. Division, Pune?
Ans. This case was filed by Shri Pradeep Dorje against Mrs. Kadam and Mr. Dorje had given rights to me to continue or withdraw the suit.
Q.17 What was the Civil Suit?
Ans. Mr. Pradeep Dorje had MOU duly signed by Mrs. Kadam and other owners of the property in respect of the property mentioned at Q.No.7 and the owners were not signing the documents required for transfer of such property to Mr. Dorje. Accordingly, Mr. Dorje had filed the civil suit against the property owners. Q.22 The property in question finally has been purchased by Foolmoon Housing Pvt. Ltd. Please state as to what you have received from Foolmoon Housing Pvt. Ltd. and the mode of receipt of money by you?21
Ans. Rs.3 crores received by account payee crossed cheque. The money was received from 2007 to 2010.
Q.23 For receipt of aforesaid money, what did you do as quit-pro- quo?
Ans. I filed affidavit for withdrawal of civil suit which was pending before the Civil Court.
Q.24 How, the money received of Rs.3 crores from Foolmoon has been accounted for and offer3ed to tax? During the proceedings of summons a computation sheet has been filed which is showing sale consideration of Rs.3 crores of the land in question and exemption of u/s.54F has been claimed of Rs.3.25 crores. You may explain with any supporting evidences, that at the first place when the property was not belonging to you, how the money received is shown as sale consideration, in which you only had withdrawn Civil Suit in the name of Shri Dorje? Also provide copy of the affidavit filed before the Civil Court, withdrawing the civil suit and copy of any other document, deed which you may have signed in favour of Foolmoon Housing Pvt. Ltd.,?
Ans. I have not shown the amount of Rs.3 crores in my books of accounts. As and when the money was 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 22 respondent, in our opinion, is incorrect. Further, in view of the above facts, the observation of the AO that Mr. Sanjay N. Lohade had no locus standi is also incorrect since Mr. Sanjay N. Lohade was given not only Power of Attorney but was also given the right to obtain the development agreement and purchase the said land in his name and for that purpose the entire litigation involved in Civil Suit No.1006/1996 was also required to be attended by him at his own cost and responsibility.
13.7 In case of transactions in immovable properties the purchaser will always try to buy the property free of litigation. When the land in question is not free from litigation and a civil suit is pending, a fact not disputed by the AO himself, therefore, the payment to Mr. Sanjay N. Lohade by M/s. Full Moon Housing Pvt. Ltd. either at the instance of the assessee or otherwise has to be allowed as deduction from the sale proceeds. 13.8 Further, Mr. Sanjay N. Lohade vide his letter dated 20-10- 2010 addressed to the Addl.CIT Range-3, Pune has stated that he has received an amount of Rs.3 crores on various dates by cheque for releasing all rights and for withdrawing the Civil Special Court Suit No.1006/1996 for Sy.No.5, Baner. The contents of the said letter reads as under :
"From Sanjay Lohade Unique Chambers, F.C. Road, Tukaram Paduka Chowk, Pune - 411005 Date : 20th Oct, 2010 To The Additional Comm. of Income Tax, Range-3, Pune Respected Sir, I, the undersigned do hereby state and confirm as under : 23
1. That I have received Rs.3,00,00,00.00 by account payee cheque from M/s. Foolmoon Housing Pvt. Ltd., details of which are under :
Date Ch.No. Amount
30-08-2007 523128 11,00,000/-
01-11-2007 240271 50,00,000/-
16-11-2007 240272 25,00,000/-
12-12-2007 249704 25,00,000/-
05-03-2008 240293 50,00,000/-
05-03-2008 240292 50,00,000/-
10-03-2008 249734 50,00,000/-
11-10-2010 RTGS 39,00,000/-
3,00,00,000/-
2. That the said amount is received by me for releasing all rights and for withdrawing the civil Special Court Suit No.1006/1996 for S.No.5 Baner.
Thanking you, Yours Truly, Sd/-
Sanjay Lohade"
13.9 The Hon'ble Bombay High 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 24 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 encumbrance. Therefore, even if the amount of Rs.3 crores would have been paid by the assessee to Mr. Sanjay N. Lohade for giving free and peaceful possession of the land to M/s. Full Moon Housing Pvt. Ltd. the said amount would have been allowed as deduction from the hands of Shri Kailash Babulal Wani, i.e. the assessee. Therefore, in our opinion, it is immaterial as to whether the amount has been paid to Mr. Sanjay N. Lohade by M/s. Full Moon Housing Pvt. Ltd. at the instance of the assessee or the assessee has paid directly to Mr. Sanjay N. Lohade from the total consideration. As mentioned earlier in the preceding paragraphs, the MOU was impounded, therefore, the contents of the MOU has to be considered and accepted as a whole. The revenue cannot be permitted to use a part of the MOU as correct and the other part as incorrect. Since the document impounded from the premises of the assessee shows payment of Rs. 3 cores to Mr. Sanjay N. Lohade which has been assessed in his hands as commission income and which has been upheld by the CIT(A), therefore, we find no infirmity in the order of the CIT(A) deleting the addition of Rs.3 crores from the hands of the assessee. In this view of the matter and in view of the detailed reasonings given by the CIT(A) while deleting the addition we find no infirmity in his order and therefore, uphold the same. Grounds of appeal No. 1 to 3 by the Revenue are accordingly dismissed.25
14. Ground of appeal No.4 by the Revenue reads as under :
"(4) The learned Commissioner of Income-tax (Appeals) erred in deleting Rs.4,90,000/- though the assessee could explain the expenses of Rs.20,10,000/- out of total expenses of Rs.25 lacs in the course of assessment as well as appellate proceedings."
15. Facts of the case, in brief, are that during the assessment proceedings the Assessing Officer noted that the purchaser M/s.FMHPL had paid Rs. 25 lakhs to the assessee for incurring the expenditure for registration, stamp etc. The Assessing Officer sought the details of the expenses incurred with supporting evidence. From the various details furnished by the assessee, the Assessing Officer found that the assessee's documents of registration of land as per Index II showed an amount of registration fee to the tune of 17 lakhs and Rs. 2.5 lakhs and registration charges of Rs. 30,000/- for two registrations, which totalled to Rs. 20,10,000/-. For balance amount of Rs.4,90,000/ - the assessee did not offer any explanation. The Assessing Officer therefore held the same to be unspent and added the same to the total income of the assessee.
16. Before CIT(A) the assessee submitted that during the assessment proceedings vide letter dated 28-10-2010 the details of the expenditure incurred on stamps, registration etc., were submitted the details of which are as under :
Particulars Amount
(in Rs.)
Siddharth Raajagadia Document Franking 2,50,010
Siddharth Raajagadia's Document Registration 30,000
Mohit Astekar's Document Franking 5,40,628
Sudhir Yeole's Document Registration 5,94,691
Sunil Wani's Document Registration Franking 5,94,691
Above three Document Registration DD 30,000
FHPL's Document Registration Franking 4,15,010
FHPL's Document Registration DD 30,000
Other Exp. (Legal Fees) 14,970
26
Total Expenses of Registration 25,00,000
The assessee submitted that the Assessing Officer on the basis of some information which is unknown to the assessee held that the assessee had incurred expenditure of Rs.20,10,000/- only and added the balance amount of Rs. 4,10,000/- to the total income.
17. Based on the arguments advanced by the assessee, the Ld.CIT(A) deleted the addition. While doing so he observed that the Assessing Officer did not examine the details during the assessment proceedings which were filed by the assessee nor carried out any enquiry before making the aforesaid addition. The details which were submitted by the assessee before the Assessing Officer clearly indicate the nature of expenses and also proves the incurrence of expenditure.
18. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us.
19. We have considered the rival arguments made by both the sides. From page 35 of the paper book we find the assessee has given the details of expenditure of Rs.25,00,000/- the details of which are already given above at para 16. It is not known from where the Assessing Officer had taken the figure of Rs.4,10,000/-. We find except the other expenses/legal fees of Rs.14,970/- the balance expenses are related to document franking and document registration demand draft. The legal expenses of Rs.14,970/- is very nominal considering the transactions in question. We therefore, do not find any infirmity 27 in the order of the CIT(A) deleting the addition of Rs.4,10,000/-. The ground raised by the Revenue is accordingly dismissed.
20. In the result, the appeal filed by the Revenue is dismissed.
Pronounced in the open court on 30-06-2015.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
satish
Pune Dated: 30th June, 2015
Copy of the order forwarded to :
1. Assessee
2. Department
3. CIT(A)-II, Pune
4. CIT-II, Pune
5. The D.R, "A" Pune Bench
6. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune