POPULAR ESTATE MANAGEMENT LTD.,(PREVIOUSLY KNOWN AS PIONEER TECHNOPARK LTD),AHMEDABAD vs. THE DY.CIT, CIRCLE-3(1)(1),, AHMEDABAD

PER WASEEM AHMED, ACCOUNTANT MEMBER:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 The assessee has raised the following grounds of appeal:-

1. The Ld.CIT(A) has grossly erred in law and on facts in dismissing the appeal. He ought to have allowed the appeal fully in accordance with the grounds of appeal

raised by the appellant before him. I. Addition on account of alleged unexplained cash credit u/s.68 of the I.T.Act, 1961 on account of relinquishment of right – Rs.18,02,53,000/-.

1. The Ld.CIT(A) has erred in law and on facts in confirming the addition of Rs.18,02,53,000/- as made by the Ld.A.O. while treating the compensation received for relinquishment of right to sue as taxable business income and accordingly revenue receipt as against the4 capital receipt not assessable either as capital gains or business income.

2. That the Ld.CIT(A) has failed to consider the fact that the rights acquired by the appellant company under different development agreements was a “Right to Sue” and as per the provisions of section 6(e) of the Transfer of Property Act, “Right to Sue” is not a property and thereby it is not a “Capital Asset” and as a consequence, impugned receipt of Rs.18,02,53,000/- received as compensation/damages for relinquishment of right to sue in the Courts of law is a “capital receipt” in the hands of the appellant company not assessable either as capital gains or business income in view of the Hon’ble Jurisdictional Gujarat High Jurisdictional High Court in the case of (i) Baroda Cement & Chemicals Ltd vs. CIT 158 ITR 636 (Guj.), (ii) CIT vs. Hiralal Manilal Mody 131 ITR 421 (Guj.), (iii) Hon’ble Calcutta High Court in the case of CIT vs. Ashoka Marketing Ltd. 164 ITR 664 (Cal.), (iv) CIT vs. J. Dalmia 149 ITR 215 (Del.) & (v) Satyam Food Specialties (P) Ltd. vs. DCIT, Central Circle-2, Jaipur [2015] 57 taxmann.com 194.

3. The Ld.CIT(A) has grossly erred in law and on facts in failing to consider the fact that Hon’ble ITAT, Ahmedabad “A” Bench in the case of appellant company’s own case rendered the appellate order vide dated 29/08/2017 for AY 2009-10, wherein, the compensation for relinquishment of right to sue was the grounds of appeal being the said compensation whether subject to tax or not was the issue and the Hon’ble ITAT, Ahmedabad, “A” Bench has allowed the appeal of the appellant company in favour of the appellant company by holding that the amount received as a capital receipt not assessable either as a capital gain or business income in view of the Hon’ble Jurisdictional High Court in the case of (i) Baroda Cement & Chemicals Ltd. vs. CIT 158 ITR 636 (Guj.), (ii) CIT vs. Hiralal Manila I Mody 131 ITR 421 (Guj.), (ii) Hon’ble Calcutta High Court in the case of CIT vs. Ashoka Marketing Ltd. 164 ITR 664 (Cal.), (iv) CIT vs. J. Dalmia 149 ITR 215 (Del.) & (v) Satyam Food Specialties (P) Ltd. vs. DCIT, Central Circle-2, Jaipur [2015] 57 taxmann.com 194 and thereby deleted the addition as made by the Ld. A.O. in the assessment order and copy of the Hon’ble ITAT order dated 29/08/2017 for AY 2009- 10 has already been provided to the Ld.CIT(A) in the appellate proceedings.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 3 -

The appellant company reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing. Prayer The appellant therefore respectfully prays that :-

1. 1. The addition of Rs.18,02,53,000/- on account of alleged unexplained cash credit u/s.68 of the I.T.Act, 1961 confirmed by the Ld.CIT(A) may kindly be deleted.

2. Such and further relief as the nature and circumstances of the case may justify.

The effective ground of appeal raised by the assessee is that the ld. CIT(A) erred in confirming the order of the AO by treating the capital receipt of Rs. 18,02,53,000/- as income of the assessee.

2.1. However, the assessee in response to such notice did not make any submission on merit. Therefore the AO in the absence of any documentary evidence, and further observing that similar receipt was treated as income of the assessee in the earlier assessment year, treated

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 4 - the same as unexplained cash credit under section 68 of the Act and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT(A).

3. The assessee before the learned CIT (A) submitted that it has entered into the agreements with different societies which were holding the agriculture lands. As per the agreement, the assessee was appointed by the societies as project consultant and organizer to develop such agricultural lands. There was also a clause in the agreement that in case the society terminates the development agreement or wishs to sale the land, then the assessee shall have the pre-emptive right for the purchase of such land. Similarly, there was also a clause in the agreement that in case the society terminates the agreement and does not wish to sell the land to the assessee, then the societies will pay compensation to the assessee.

3.1 As such, the societies terminated the agreement and decided to sell the land to different persons after making the payment of the compensation to the assessee. Accordingly the assessee claimed to have received a sum of Rs.18,02,53,000/- as compensation by relinquishing its right in such properties/lands of the societies. Thus the assessee further claimed that such compensation represents the capital receipt not chargeable to tax.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

- 5 - 3.2. The assessee in support of its contention also filed the following documentary evidence: “1) Copies of Development Agreements entered into with aforesaid societies/Mandli are attached herewith as per Exhibit –I (Page No.1 to 181). i) Copies of Termination Agreements entered into with aforesaid societies/Mandli are attached herewith as per Exhibit –II (Page No.182 to 229). ii) Copies of Sale Deeds entered into by the aforesaid societies/Mandli are attached herewith as per Exhibit –II-A (Page No.230 to 689). iii) Copy of said Ledger Account of Compensation Damages Received from aforesaid societies/Mandli are attached herewith as per Exhibit –III (Page No.690). iv) Copies of said Ledger Accounts aforesaid societies/Mandli are attached herewith as per Exhibit – IV (Page No.691 to 699).”

3.3. The assessee further submitted that the compensation received by it on account of the relinquishment of right cannot be treated as a capital asset within the meaning of the provisions of section 2(14) read with section 45 of the Act. Once, the agreement was terminated by the society the only right available to the assessee was to file sue in the court of law for the breach of the contract. Such right cannot be termed as capital assets. Therefore, the compensation received by the assessee in lieu of filing sue in the court of law against the society for termination of the agreement, represents the capital receipt not chargeable to tax.

4. The learned CIT (A) on the details filed by the assessee called for the remand report from the AO vide letter dated 7th February 2017. The AO accordingly filed the remand report vide letter dated 24th April 2017. The AO in the remand report submitted that the case of the assessee does not fall within the circumstances specified under Rule 46A for admitting

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 6 - the additional evidences, therefore the AO objected on the admission of the additional evidences filed by the assessee before the learned CIT-A.

4.1. The AO without prejudice to the above also doubted on the termination of the agreement with the societies and observed certain defects as detailed under: i. All the development agreements were made at the fag end of March 2007. ii. All the development agreements were unregistered. iii. All the development agreements were made in the same fonts which were notarized by the common notary public. iv. Similarly all the termination agreements were made at the fag end of March 2011. v. All the termination agreements were unregistered. vi. All the termination agreements were made in the same fonts which were notarized by the common notary public.

4.2. The AO in the remand report further observed that the termination of the development agreement with all the parties/societies does not appear to be true. It is because the story of terminating the agreement with 8 parties cannot be considered reasonable/possible in the common business parlance. Furthermore, the character of the compensation amount received on account of the termination agreement is of the business receipt. Therefore the same should be taxable as the business income of the assessee.

4.3. The AO also observed that the assessee has made certain payment to the societies before and after entering into development agreement as Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 7 - evident from remand report reproduced at page 19 & 20 of the learned CIT (A) order.

4.4. The assessee in the rebuttal submitted that the observations made by the AO during the remand proceedings are general and no adverse inference can be drawn against the assessee. As such all the transactions between the assessee and the societies are supported based on the agreement which were duly complied by both the parties.

4.5. The assessee further submitted that the right acquired by it in pursuance to the agreement with the society was to file sue for the specific performance of the agreement which cannot be treated at par with the capital assets.

4.6. The assessee also claimed that there was no compensation received by it in the assessment year 2007-08 as alleged by the AO therefore the question of offering such compensation to the income does not arise. As such the receipt in the assessment year 2007-08 was representing the interest income which was offered to tax but the same cannot be compared with the compensation received by the assessee in the year under consideration.

4.7. The assessee also submitted that the Hon’ble ITAT Ahmedabad “A” Bench in the own case of the assessee involving identical facts and circumstances has decided the issue in favour of the assessee vide ITA

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

- 8 - No. 212/AHD/2014 order dated 29 August 2017 pertaining to the assessment year 2009-10.

4.8. However, the learned CIT(A) observed that the facts of the case for the assessment year 2009-10 are different with the facts of the case for the year under consideration. Accordingly the learned CIT (A) pointed out such differences in the facts as detailed under: i. During the A.Y. 2009-10 all the activities/ transactions such as signing of the development agreement, termination of the agreement and sale of the land to the others persons happened in same financial year i.e. 2008-09 corresponding to A.Y. 2009- 10 whereas in the year under consideration the signing of the development agreement was done in the assessment year2007- 08, termination of the agreement was done in the assessment year 2011-12 and the compensation received by the assessee was in the assessment year 2012-13 i.e. the year under consideration. ii. During the assessment year 2009-10, there was no payment made by assessee to the societies whereas for the year under consideration the assessee has made the payment to the societies as detailed under:

Sr.No. Name of Society Amount as per Date of Payment to the Agreement payment Mandali (Rs.) to be paid by the appellant 1. Saheli Samudayik Kheti 35,00,000 - - Sah.Mandli Ltd. 2. Someshwara Darshan 50,00,000 10-04-2007 2000000 Co-op.H.S.L. V-6 12-05-2007 1014000 01-02-2008 5000 21-03-2008 500000 3519000

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

iii. The directors/shareholders of the assessee company and the members of the societies vis-a- vis the buyers of the lands from the societies were either closely connected or related to each other. But the ITAT in its order for the assessment year 2009- 10 has not considered this aspect which is quite vital for deciding the issue on hand. As per the ld. CIT-A there were four persons who were controlling the entire Popular Group along with their family members namely Chhaganbhai Bholidas Patel, Ramanbhai Bholidas Patel, Dasrathbhai Bholidas Patel and Natwar Lal Bholidas Patel. The name of these four persons and their family members can be found either as signatory of societies or ultimate buyer of the land. The details of such persons along with family members are contained on pages 60 to 63 of ld. CIT-A order. iv. Similarly, the termination agreements between the assessee and the societies viz a viz the sale agreements between the societies

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 10 - and the buyers of the lands were not considered by the ITAT in its order which is quite vital for deciding the issue on hand.

4.9. In view of above difference in facts of the case the ld. CIT (A) disagreed with the decision of Hon’ble ITAT Ahmedabad ‘A’ bench in assessee’s own case as discussed above. Accordingly the Ld. CIT(A) further made his own observation after considering the submission of the assessee and the remand report of the AO which are detailed as under: a. As per the information received from society registration office with respect to 3 societies out of 8 societies, it was gathered that there was not sufficient fund or source of income available to society to purchase land. As such the fund was provided by the assessee with pre-emptive purchase right. There was no information received with respect to the remaining 5 societies from the registration office despite the same was requisitioned. b. There was change in the managing committee /members of the societies when the development agreement was signed by the assessee with such societies and when the termination agreement was signed by the assessee with such societies. As such the managing committee /members of the societies continued to be the same from the date of the agreement i.e. 2007 to March 2010. Thereafter there was the change in the managing committee/members of the society when the termination agreement was signed in the year March 2011 and the sale deed was executed. c. Further the major amount of the sale consideration received by the societies was given by it (societies) as compensation to the assessee which is constituting on an average 85% of the gross sales consideration. The details of the buyers of the land with the Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 11 - relationship of the assessee and the amount of compensation against the gross sales consideration is contained in tabular form on pages 67 to 70 in the order of the learned CIT-A. d. The amount of compensation received by the assessee from the societies was immediately transferred to the parties directly connected/related with the assessee within a day or two. Thus, at the end of the day it was the popular group who was benefited out of the land transaction deal after involving the societies and other associates in order to avoid the payment of taxes. e. The development agreement reveals that the assessee has acquired the right from the societies for development of the land owned by them. Further, in the event of breach of the agreement by society on account of any dispute, the assessee was to be compensated by it (the societies). Eventually the assessee was compensated as the society breached the development agreement as per the termination agreement. However, on perusal of the sale deed by the society to the final buyers, it was emerged out that the societies sold the land because there was the construction going on in the nearby area. As such there was no reference of any kind of dispute between the assessee and the societies which entailed the payment of the compensation by the society to the assessee. Thus the payment of the compensation is nothing but a concocted story which far from the truth. 4.10. In view of the above, the learned CIT (A) concluded that the amount of compensation received by the assessee does not represent as a result of breach of contract. As such the assessee by using dubious method tried to avoid the payment of tax. Accordingly, the learned CIT(A) rejected the contention of the assessee and confirmed the order of the AO by observing as under:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

“12. Thus, I am of the considered view that as rightly pointed out by the A.O in his remand report, there seems to be a distinct modus operandi emerging out of these arrangements. The appellant itself had given funds to the societies to buy the land. Its own share holders, related parties are the members of the managing committee or the society. This fact was never disclosed either during the assessment or remand or appellate proceedings. Then the appellant entered into Development Agreement with eight societies or persons and received large sums in lieu of right to sue after the Development Agreements are terminated by the societies and land is sold to the third party. The year in which the termination agreement took place, the share holders or the related parties were no more the member of the society or the managing committee. The final buyers or the third parties are none other than the CMD, Director, shareholders or the related parties of the appellant company. An artificial scenario of 'dispute' is created resulting into termination agreement and payment of compensation. The glaring contradictions in the final sale document and the development/termination agreements cannot be ignored. On the contrary, the real grievance lies with the societies/vendors for non performance or breach of the contract by the appellant. They have the right to sue the appellant. However, the facade created by the appellant has resulted into a large chunk of fund remaining within the 'Popular Group' as mentioned earlier and the appellant taking the shield of capital receipt argument to avoid payment of taxes. One has to look beyond what is not apparent. This has happened not only in this year but as mentioned, in earlier years as well the appellant has entered into similar set of agreements to claim capital receipts and avoid payment of taxes. In three years i.e. AY 2009-10, AY 2012-13 & AY 2015-16 the appellant has claimed capital receipt of approx. Rs. 41 crores as non taxable. Hon'ble ITAT has given the relief to the appellant for AY 2009-10 as discussed earlier. The Hon'ble ITAT for AY 2009-10, and the AO has rightly pointed out that the main object of the appellant is to develop property and transact into real estate. It has been proved again and again by the appellant by its conduct of business that repeatedly the appellant has undertaken the transactions of land deals right from A.Y.2007-08 onwards. As such transactions are part and parcel of the business and profession of the appellant, the income arising from the conduct of such business and profession will have to be taxed under the head income from business and profession. Therefore, I agree with the A.O that the receipt of Rs.18,02,53,000/- shall be taxed under the head income from business and profession. Accordingly, the addition made by the A.O amounting to Rs. 18,02,53,000/- under the head income from business and profession is hereby confirmed. The ground of appeal is hereby dismissed.”

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 13 - 5. The learned AR before us filed a paper book running from pages 1 to 1081 and submitted that this tribunal in the own case of the assessee in the earlier assessment year 2009-10 involving identical facts and circumstances has deleted the addition.

6. On the other hand, the learned DR vehemently supported the order of the authorities below.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 14 -

i. Whether the case of the assessee is covered by the order of this tribunal in its own case for the assessment year 2009-10 as discussed above. ii. Whether the amount of compensation received by the assessee represents the income of it (the assessee).

9.1. On perusal of the above reason, we find that the character of the transaction for receiving the compensation will not change merely on the ground that the development agreement, termination of agreement and the sale of the property happen in different financial years. It is because

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 15 - there are different parties involved in the transactions and the assessee has no control of whatsoever on these parties. As such, when the societies terminated the agreement with the assessee, it acquired the right to sue and for relinquishment of such right it received the compensation. Therefore, in these facts and circumstances we are of the view that the facts of the present case for the year under consideration cannot be distinguished with the facts of the earlier assessment year 2009-10 as observed by the learned CITA. II. During the assessment year 2009-10, there was no payment made by assessee to the societies whereas for the year under consideration the assessee has made the payment to the societies. 9.2. On perusal of the ITAT order for the assessment year 2009-10, we find that the assessee received the compensation from the 3 parties. And the assessee at the time of entering into agreement with these parties paid or agreed to pay certain amount as per the understanding. Therefore it is clear that the assessee has made or agreed to make the payment of certain amount to these parties from whom it has received the compensation in the assessment year 2009-10. Similarly, the assessee for the year under consideration has also made or agreed to make the payment of certain amount to the societies which has been detailed somewhere in the preceding paragraph. Therefore, we are of the view that the finding of the learned CIT (A) that there was no payment made to the parties by the assessee in the assessment year 2009-10 is factually incorrect. To support our view, we reproduce the relevant portion of the ITAT order in in the following paragraph:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 16 -

“2. We come to relevant facts. This assessee is ^ company engaged in real estate development business. It had executed into a development agreement dated 31.03.2007 with Shri Hasmukh Bhavsinh Vaghela qua the land measuring 49068 sq.mtrs. in R. S. No. 231 in Village & Taluk Sanand, Dist. Ahmedabad for Rs.81 lacs to be paid on as and when required basis. The assessee entered into similar agreement on the very day in identical terms with Shree Someshwara Darshan Samudike Kheti Sahkari Mandli Ltd., Part-1 (registered body) pertaining to its land measuring 1012 sq.mtrs. comprised in R.S. 305, revenue estate of village Thaltej, Daskroi Taluka, Dist. Ahmedabad for Rs.251acs. It issued a cheque of Rs.l4.541acs in favour of the said body. It further agreed to provide remaining sum of Rs.l0.461acs on as and when required basis in the nature of interest free security deposit. The assessee's third development agreement came to be executed on 18.03.2008 with S/Shri Raghuvir Sinh Amar Sinh Vaghela and his son Balbhadrasinh Vaghela regarding their land admeasuring about 57,466 sq.mtrs. in R.S. 232, Village & Taluka Sanand, District Ahmedabad. There is no dispute that clause no.24 in this third agreement stipulated the assessee to pay sum of Rs.95 lacs on as and when required basis herein as well.”

9.3. Thus, in these facts of circumstances we are of the view that the facts of the present case for the year under consideration cannot be distinguished with the facts of the earlier assessment year 2009-10 as observed by the learned CIT-A.

III. The directors/shareholders of the assessee company and the members of the societies viz a viz the buyers of the lands from the societies were either closely connected or related to each other. But the ITAT in its order for the assessment year 2009-10 has not considered this aspect which is quite vital for deciding the issue on hand.

9.4. In this connection, we note that there is no provision under the statute prohibiting any person to enter into a transaction with the related/connected parties. The provisions of section 40A(2)(b) of the Act

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 17 - only mandates to have the transactions with the related parties at the fair market value and there is no allegation by the authorities below that the impugned transaction was not carried out at the fair market value. Moreover, we also note that there was no discussion in the order of the ITAT for the assessment year 2009-10 whether the transactions were among the related parties. Thus in the absence of any specific information there can be two situations, firstly there may be transactions with the related parties or secondly there may not be the transactions with the related parties. Hence, it cannot be concluded that there was no transaction with the related parties in the assessment year 2009-10 in the absence of any specific information. Moreover, the ld. CIT-A has not brought anything on record suggesting that the transaction in the AY 2009-10 was not with the related parties.

9.5 As such we note that the principles were laid down by the Tribunal after relying the judgment of the Hon’ble Gujarat High Court as discussed above for the assessment year 2009-10 cannot be altered merely on the ground that the transaction was entered with the related parties. Accordingly we are not impressed with the finding of the learned CIT (A).

9.6. Without prejudice to the above, we are also inclined to refer the relevant finding of the learned CIT (A) on page 66, 70, 71, 83 and 90 of the order as reproduced/extracted below:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

“Fourthly, the final buyers of the land from the societies were also the Director, share holders or the related parties of the appellant (tabulated in the table below). Finally, neither during the assessment proceedings or remand proceedings or appellate proceedings these facts were disclosed. The appellant is/was very much aware of these facts for the reason that appellant itself had given funds to the society, its own shareholders/directors/related parties were members of the society as well as managing committee, and had withdrawn from the membership at the time of termination agreement or signing of final sale deed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7.14 it can be seen from the tabulation given above that the final buyers who paid consideration to various societies were also the CMD, Director, shareholders or the related party of the appellant company. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX The appellant had also submitted the bank statements reflecting the receipt of funds from the societies. It was observed from these bank statements that as and when the funds have been received from societies within a day or two the funds have been transferred or given further to related entities by the appellant. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 7.15… … Thus, right from the societies till the final recipient of funds from the societies to the appellant, it is only the ‘Popular’ group and its concerns including related parties or shareholders that have remained the recipient and the real beneficiaries of these land transactions. Thus, the development agreement and termination agreement appear to be a façade to avoid payment of taxes. This web of agreements was merely a façade created to show to the revenue authorities that the funds received are in the form of capital receipts and avoid payment of taxes.” XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

10.4 Coupled with the fact and as discussed earlier, many of the persons in the societies, the appellant and its directors and shareholders and finally the final buyers being all belonged to the same ‘ Popular group’. Therefore these are not real transactions. I am convinced that the appellant has created façade of development and termination agreements whereby pre-emptive purchase rights were given and surrendered. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

The final buyers or the third parties are none other than the CMD, Director, shareholders or the related parties of the appellant company. An artificial scenario of 'dispute' is created resulting into termination agreement and payment of compensation.”

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 19 - 9.7. The allegation of the learned CIT (A) is that the entire flow of transaction was within the popular group. As per the learned CIT (A) the flow of transaction can be represented in the following manner:

3. Societies terminated the agreement and decided to sale the land to third party and agreed to pay compensation to assessee in March 2011

9.8. As per the finding of the learned CIT (A), the entire flow of transaction was made as represented above to escape from the tax liability. As such the learned CIT (A) was of the view that all the parties were part of the popular group. In our considered view, if this finding of the learned CIT (A) is taken as the gospel truth, then the aforesaid transactions are nothing but the circular transaction among the parties forming part of the group. Now the question arises whether such circular

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 20 - transaction among the group can result income in the hands of the assessee. To our mind, the answer is in negative. It is because, first of all, the source of payment made by the buyer of the land has not been doubted. It means the buyer made the payment to the society which in turn made payment to the company and company in turn made the payment to the parties connected with it. Thus the entire circular of transaction does not give rise to any income in the hands of the assessee if the theory of the learned CIT (A) is accepted. As such, there was no real income in the hands of the assessee which is chargeable to tax.

IV. Similarly, the termination agreements between the assessee and the societies viz a viz the sale agreements between the societies and the buyers of the lands were not considered by the ITAT in its order which is quite vital for deciding the issue on hand.

9.9. Details given by the societies in the sale deed for transferring the land to the buyers as discussed above, represents the transactions between the 3rd parties. As such the assessee plays no role and therefore no inference can be drawn against the assessee based on the transactions of the properties i.e. sale of the land to third parties. Accordingly, consideration of the issue in hand in the light of the transaction between the society and the buyer cannot be a ground to draw any adverse inference against the assessee.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 21 - 9.10. Without prejudice to the above, We also note that the CIT (A) has given its finding that there was change of managing committee/ members in the society when the development agreement was made viz a viz when the termination agreement was made as well as when the compensation was paid by the societies to the assessee. The relevant finding of the learned CIT (A) stands as under:

“7.12.4 …. The Director, Shareholders or the related parties were the part of the Managing Committee of the societies or member of the societies when the development agreement was signed in March 2007 or even till March 2010. These same person were no more in the Managing committee or were the members of the society in March 2011 i.e. when the termination agreement and the sale deed took place.”

9.11. The finding of the learned CIT-A as discussed above suggest that the transaction between the assessee and the society was not representing the related party transaction as alleged by the learned CIT (A). As such we note that the learned CIT (A) has given contrary findings about the fact whether the assessee and the societies were related to each other either directly or indirectly.

9.12. In view of the above and after considering the facts in totality, we are of the view that the issue in the present case is covered in favour of the assessee by the order of this tribunal in its own case for the assessment year 2009-10 as discussed above.

9.13. The relevant finding of the ITAT order for the assessment 2009-10 is extracted as under:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

16. We have given our thoughtful consideration to rival submissions. We have also perused the relevant case record with able to assistance of both the learned counsel. The dispute between the parties is qua treatment of compensation receipt in question amounting to Rs.3.87crores. The assessee's case is that it is a capital receipt not taxable as business income or capital gains. The Revenue on the other hand draws support from both the lower authorities' action assessing the same as business income. The assessee admittedly is in real - estate development business. It entered into the above identical verdict three development agreements with as many vendor parties followed by the latter paying it variable amounts in question totaling to Rs.3.87 crores in lieu of getting former's right to preemptive purchase or right to use for specific performance surrendered in their favour. There is no evidence in the case file indicating the assessee to have undertaken even a single activity of development is all three parcels of land. We notice in this factual backdrop that hon'ble jurisdictional high court's decision in Baroda Cement and Chemical case (supra) holds that the amount received in lieu of such a right to sue available after a vendor breaching the relevant agreement is not an actionable claim so as to be transferred u/s.6(e) of the Transfer and Property Act giving rise to assessable capital gains. Their lordships of Calcutta High Court (supra) further reiterate the same view Mr. Madhusudan's case is that the amount in question has been rightly assessed as assessee's business income. We find no merit in the instant plea as the assessee has neither paid any consideration money nor carried out any development Activity. It had merely obtained a licensee right to enter into possession into three parcels of land not creating any easement or interest therein as per Section 52 of the easement law. We further observe that the assessee developer could not have entered into full fledged possession in performance of the agreement in view of statutory bar u/s. 63 of the Bombay Tenancy and Agricultural Land Act, 1948 (applicable in Gujarat state). There is no material indicating the above lands being converted to non agricultural. The same sufficiently indicates that assessee's license right existed on paper only. Hon'ble Bombay high court's decision in Manoj B. Joshi's case (supra) holds that such an amount is not to be taxed as income u/s.2(24) of the Act. This tribunal's co-ordinate bench decision in Govindbhai C. Patel's case (supra) also is of the view that an identical compensation sum as in facts of the instant case is not a business income as well since not covered under specific instances u/s.28(va) of the Act. The Revenue's stands therefore holding both development and cancellation agreements in all cases is not sustainable in view of the same unregistered documents does not carry any merit as Section 17 of the Registration Law could not have been applied in view of bar on transfer of the lands in question. We thus observe that assessee's above development license acquired in its all three agreements does not amount to part performance requiring compulsory registration u/s. 17 of the Registration Act. We therefore conclude in this view of all this evidence as well as legal position that the impugned compensation amount is not liable to be treated as income u/s.2(24) of the Act nor the same is taxable as capital gain for business income being in the nature of a capital receipt.

- 23 - impugned payments made to the assessee as expenses in computation of their respective income without questioning any genuineness element therein. So is the outcome of Revenue's next plea that the assessee had surrendered its right to sue without taking any legal recourse. We observe in this context with the assessee could very well be treated as an aggrieved party against its vendors' action executing sale deed in favour of third party vendees. The Revenue's argument that the cancellation document had been purchased well in advance is also not relevant since it is not mandatory that the same ought to have been purchased on the date of cancellation only. What is material in these facts is that there should be a valid document. There is no bar in stamp law that any party cannot purchase such documents in advance. The Revenue fails to quote any such rule which could be held as to have been violated in such an advance purchase of stamp papers. We find that Revenue's further argument that no prudent assessee would enter into such a transaction also does not deserve acceptance since the assessee in fact has acted as a prudent entity wherein it succeeded in excessive compensation amount not otherwise taxable being in the nature of capital receipt. We further reject Revenue's next argument that the assessee itself had shown the impugned sum as its income in its books of account in view of hon'ble apex court's decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT (1997) 6 SCC 117 (SC) to conclude that an accounting treatment is not a determinative factor in deciding taxability of receipt.

9.14. Thus, the issue which has been decided by this tribunal is binding on us. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore we are bound to follow the same. We cannot change the stand taken by the ITAT in the own case of the assessee. Regarding this we find support & guidance from the judgment of Hon’ble Gujarat High Court in case of Affection Investments Limited vs. ACIT [2010] 326 ITR 255 where it was held as under:

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

- 24 - “6. The law is well settled on this subject. As laid down by this Court in case of Sayaji Iron & Engg. Co. v. CIT [2002] 172 CTR (Guj.) 339 : [2002] 253 ITR 749 (Guj.),once the Tribunal had come to the conclusion that the fact situation was identical, to the one obtaining in a decided matter, no Co-ordinate Bench of the Tribunal has any right or jurisdiction to record a contrary decision, entirely contrary to the one reached by another Co ordinate Bench of the same Tribunal on same set of facts and circumstances. Mere difference in the Members manning the Tribunal does not vest the subsequent Bench with such power. The principle is based on judicial propriety and the confidence which the litigating public has in judicial hierarchy and the institution. The only course, that is open to the subsequent Co-ordinate Bench, would be to make a reference to the President of the Tribunal as provided in section 255 (3) of the IT Act, 1961 ('the Act') to constitute a Special Bench to resolve the controversy.”

9.15. We also find support and Guidance from the judgment of Hon’ble Madras High Court in the case of CIT v. L.G. Ramamurthi 1977 CTR (Mad.) 416 : [1977] 110 ITR 453 (Mad.) wherein it was held as under:

"No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the Courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities. If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself."

9.16. We also find that the Hon’ble supreme court in case of Ambika Parsad Mishra Vs. State of U.P. and Others vide writ petition no 1543 of 1977 vide order dated 09-05-1980 has taken the similar view as taken by the Hon’ble High court (supra) as under: “Thus we get the statutory perspective of agrarian reform and so, the constitutionality of the Act has to be tested on the touchstone of Art 31A which is the relevant protective armour for land reform laws. Even here, we must state that while we do refer to the range of constitutional immunity Art. 31Aconfers on agrarian reform measures we do not rest our decision on that provision. Independently of Art. 31A, the impugned legislation can withstand constitutional invasion and so the further challenge to Art. 31A itself is of no consequence. The comprehensive vocabulary of that purposeful provision obviously catches within its protective net the present Act and, broadly speaking, the antiseptic effect of that Article is sufficient to immunise the Act against invalidation to the extent stated therein. The extreme argument that Art. 31A itself is void as violative of the basic structure of the Constitution has been negatived by my learned brother, Bhagwati, J. in a kindred group of cases of Andhra Pradesh. The amulet of Art. 31A is, therefore, potent, so far as it goes, but beyond its ambit it is still possible, as counsel have endeavoured, to spin out some sound argument to nullify one section or the other. Surely, the legislature cannot run amok in the blind belief that Art. 31A is omnipotent. We will examine the alleged infirmities in due course. It is significant that even apart from the many decisions upholding Art. 31A, Golak Nath's case decided by a Bench of 11 Judges, while holding that the Constitution (First Amendment) Act exceeded the constituent power still categorically declared that the said amendment and a few other like amendments would be held good based on the doctrine of prospective over- ruling. The result, for our purpose, is that even Golak Nath's case has held Art. 31A valid. The note struck by later cases reversing Golaknath does not militate against the vires of Art. 31A. Suffice it to say that in the Kesavananda Bharati's case. Article 31A was challenged as beyond the amendatory power of Parliament and, therefore, invalid. But, after listening to the marathon erudition from eminent counsel, a 13 Judges Bench of this Court upheld the vires of Article 31A in unequivocal terms. That decision binds, on the simple score of stare decisis and the constitutional ground of Art.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 - 26 - and after Art. 31A has stood judicial scrutiny although, as stated earlier, we do not base the conclusion on Art. 31A. Even so, it is fundamental that the nation's Constitution is not kept in constant uncertainty by judicial review every season because it paralyses, by perennial suspense, all legislative and administrative action on vital issues deterred by the brooding threat of forensic blowup. This, if permitted, may well be a kind of judicial destabilisation of State action too dangerous to be indulged in save where national. crisis of great moment to the life, liberty and safety of this country and its millions are at stake, or the basic direction of the nation itself is in peril of a shakeup. It is surely wrong to prove Justice Roberts of the United States Supreme Court right when he said.”

11. It is also pertinent to note that the parties involved in the entire flow of transactions namely, the assessee, societies and the buyers of the land who are separate taxable and independent persons/ entities viz a viz complying the provisions of the Act. Thus the amount of the compensation received by the assessee for relinquishment of its right to sue from societies to avoid the litigation cannot be treated as a colorable device. Hence, the amount received as compensation in view of said right is not chargeable to tax. In this regard we find support and guidance from the order of this tribunal in the case of Bhojison Infrastructure Pvt. Ltd. Vs. ITO reported in 99 Taxmann.com 26 wherein it was held as under: 10.1 The essence of long list of judicial pronouncements cited on behalf of assessee is that Section 6 of the Transfer of Property Act which uses the same expression 'property of any kind' in the context of transferability makes an exception in the case of a mere right to sue. The decisions thereunder make it abundantly clear that the 'right to sue' for damages is not an actionable claim. It cannot be assigned. Transfer of such a right is opposed to public policy as it tantamounts to gambling in litigation.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13

Hence, such a 'right to sue' does not constitute a 'capital asset' which in turn has to be 'an interest in property of any kind'. Despite the definition of expression 'capital asset' in the widest possible terms in Section 2(14) of the Act, a right to a capital asset must fall with the expression 'property of any kind' subject to certain exclusions. Notwithstanding widest import assigned to the term 'property' which signifies every possible interest which a person can hold and enjoy, the 'right to sue' is a right in personam and such right cannot certainly be transferred. In order to attract the charge of tax on capital gains, the sine qua non is that the receipt must have originated in a 'transfer' within the meaning of Section 45 r.w.s. 2(47) of the Act. In the absence of its transferability, the compensation/damages received by assessee is not assessable as capital gains. 10.2 The co-ordinate bench of ITAT, Ahmedabad in the case of Shekhar G. Patel dated 19.03.2014 relied upon on behalf of the assessee has made reference to host of judicial pronouncements including the decision of the Hon'ble Gujarat High Court in the case of Baroda Cement and Chemicals Ltd. (supra) and concluded the issue in favour of assessee. The Co-ordinate bench highlighted the relevant part of the decision of the Hon'ble Gujarat High Court which is reproduced hereunder:

"18. The assessee had undoubtedly a right to sue M/s K.C.P. Ltd. for damages for breach of contract. Instead of litigating in a Court of law, the parties arrived at a settlement whereunder compensation in the sum of Rs.1,40,000 came to be paid in full and final satisfaction to the assessee. Counsel for the Revenue contends that the compromise/arrangement resulted in extinguishment of the assessee's right to sue for damages within the meaning of s. 2(47) of the Act. While accepting this contention the Tribunal has placed reliance on the decision of this Court in CIT v. R.M. Amin (1971) 82 ITR 194 (Guj). In that case this Court observed that the use of the word 'include' in the definition of the word 'transfer' in s. 2(47) was intended to enlarge the meaning of 'transfer' beyond its natural import so as to include extinguishment/relinquishment of rights in the capital asset for the purpose of s. 45 of the Act. Since the transfer contemplated by s. 45 is one as a result whereof consideration has passed to the assessee or has accrued to him, extinguishment of the right must relate to that 'capital asset', corporeal or incorporeal. It is, therefore obvious that a transfer of a capital asset in order to attract liability to tax under the head 'Capital gains' must be a 'transfer' as a result whereof some consideration is received by or accrues to the assessee. If the transfer does not yield any consideration, the computation of profits or gains as provided by s. 48 of the Act would not be possible. If the transfer takes effect on extinguishment of a right in the capital asset, there must be receipt of consideration for such extinguishment to attract liability to tax. Now, in legal parlance, the terms 'consideration' and 'compensation' or 'damages' have distinct connotations. The former in the context of ss. 45 and 48 would connote payment of a sum of money to secure transfer of a capital asset; the latter would suggest payment to make amends for loss or injury occasioned on the breach of contract or tort. Both ss. 45 and 48 postulate the existence of a capital asset and the consideration received on Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 transfer thereof. But, as discussed earlier, once there is a breach of contract by one party and the other party does not keep it alive but acquiesces in the breach and decides to receive compensation therefor, the injured party cannot have any right in the capital asset which could be transferred by extinguishment to the defaulter for valuable consideration. That is because a right to sue for damages not being an actionable claim, a capital asset, there could be no question of transfer by extinguishment of the assessee's rights therein since such a transfer would be hit by s. 6(e) of the Transfer of Property Act. In any view of the matter, it is difficult to hold that the sum of Rs.1,40,000 received by way of compensation by the assessee was consideration for the transfer of a capital asset." 10.3 The Hon'ble Gujarat High Court in Baroda Cement (supra), in turn, referred to the concept of breach of contract as discussed by the Hon'ble Bombay High Court in the case of Iron and Hardware (India) Co. v. Shamlal & Bros. AIR 1954 Bom 423 as under (p. 645 of 158 ITR):

"10. Chagla, C.J., had an occasion to consider this aspect of the law in Iron and Hardware (India) Co. v. Shamlal & Bros. AIR 1954 Bom 423. The learned Chief Justice observed as under (p. 425) :

'It is well settled that when there is a breach of contract, the only right that accrues to the person who complains of the breach is the right to file a suit for recovering damages. The breach of contract does not give rise to any debt and, therefore, it has been held that a right to recover assignable because it is not a chose-in-action. An actionable claim can be assigned, but in order that there should be an actionable claim there must be a debt in the sense of an existing obligation. But inasmuch as a breach of contract does not result in any existing obligation on the part of the person who commits the breach, the right to recover damages is not an actionable claim and cannot be assigned.' Proceeding further, the learned Chief Justice stated (p. 425) : 'In my opinion, it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party. As already stated, the only right which he has the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court, Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 not be true to say that what the Court is doing is ascertaining a pecuniary liability which already exists. The Court in the first place must decide that the defendant is liable is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.' It would appear from the above observations that on breach of contract the defaulter does not incur any pecuniary liability nor does the injured party becomes entitled to any specific amount, but he only has a right to sue and claim damages which may or may not be decreed in his favour. He will have to prove (i) that the opposite party had committed breach of contract and (ii) that he had suffered pecuniary loss on account thereof.

Quoting the statement of law enunciated by Chagla C.J., which is extracted earlier, the Supreme Court stated (p. 1273) : 'This statement in our view represents the correct legal position and has our full concurrence'.

Popular Estate Management Ltd. vs. DCIT Asst.Year - 2012-13 the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.