ASSISTANT COMMISSIONER INCOME-TAX,CIRCLE-2, NASHIK vs. SMT. CHHAYA VALMIK NIKHADE,LATE SHRI VALMIK R. NIKHADE, NASHIK

आदेश / ORDER आदेश आदेश आदेश

PER SUSHMA CHOWLA, JM:

The cross appeals filed by assessee and Revenue are against the order

of CIT(A)-II, Nashik, dated 24.07.2014 relating to assessment year 2010-11

against order passed under section 143(3) of the Income-tax Act, 1961 (in short

‘the Act’).

and are being disposed of by this consolidated order for the sake of

convenience.

grounds of appeal:-

1 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition of Rs.20,00,000/- on account of compensation paid to Shri Balu Kadali. 2 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition of Rs.20,00,000/- ignoring that the said compensation expenditure has been proved in view of Notarized document filed with the A.O. 3 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.3,60,750/- on account of land development expenses incurred in the course of business and recorded in the audited books of accounts. 4 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.56,21,900/- on account of disallowance of depreciation on flat at Pune used for business purpose. 5 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.69,093/- on account of disallowance of depreciation on flat at Mumbai used for business purpose.

ITA No.1743/PUN/2014 3 ITA No.1804/PUN/2014

6 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.9,00,000/- on account of alleged unexplained advance received against land from Shri Prashant Hire. 7 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.3,63,455/- on account of disallowance of deduction u/s.80IB(10) of the Act. 8 On the facts and in law, the ld. CIT(Appeals) has erred in confirming the addition to the extent of Rs.1,26,000/- on account of deemed income from flats at Pune and Mumbai used for business purpose. 9 Your appellant craves, leave to add, alter, delete above or any other ground/s of appeal.”

3.1 The assessee has also raised the following additional ground of appeal :

On facts and in law,

of appeal:-

ITA No.1743/PUN/2014 4 ITA No.1804/PUN/2014

and hence, the same are dismissed as ‘not pressed’.

addition of Rs.20,00,000/- being compensation paid to Shri Balu Nivruti Kadali.

in the business of building and developing housing projects, manufacturing and

selling of transformers under the name and style of “PVN Transformers”. The

assessee had expired on 06-05-2010. The return of income was filed by the

legal heir, i.e. his wife by declaring total income of Rs.39,86,430/-. The

Assessing Officer noted that the assessee had debited a sum of Rs.20,00,000/-

to the profit and loss account. In reply, the assessee pointed out that the said

payment was made to Shri Balu Nivruti Kadali as compensation for acquiring

right for approach road to get access to the assessee’s plot. In support, copy of

Sathekhat dated 24-01-2010 and ledger extract of the payment made was

furnished before the Assessing Officer. The Assessing Officer noted that the

total payment was made in cash. In this regard, the assessee explained that

the said person was an Adivasi residing at Chandsi Village and since the village

was not served by any bank and he was not having any bank account, the

entire payment was made in cash to him, In the agreement dated 24-01-2010

also, this fact was mentioned that the said person had no bank account. The

Assessing Officer in order to verify the identity of the person and the

genuineness of the transaction issued summons u/s.131 of the Act. However,

the said summons could not be served on the ground that Shri Balu Nivruti

Kadali was not residing in the village Chandsi, Nashik. It was also noted that

he was not residing in the village since last 10 years though he had some

ITA No.1743/PUN/2014 5 ITA No.1804/PUN/2014

agricultural land in the village. The assessee was confronted with the said facts

and was asked to produce Shri Balu Nivruti Kadali. The legal heir of assessee

explained her inability to produce him. Thus, the claim of the assessee was not

accepted and an addition of Rs.20,00,000/- was made on this ground.

Nivruti Kadali and the genuineness of the transaction stands proved beyond

any doubt in view of the Notarized document dated 20-01-2010 which had

photo of the said person and seal and signature of notary Shri Pravin B.

Kharde, Nashik. The CIT(A) upheld the addition made in the hands of the

assessee in the absence of the assessee producing said person for verification

since the Inspector had reported that the person was not residing in the village.

It was also noted that Shri Balu Nivruti Kadali and his brother had sold the land

at Chandsi by a registered deed dated 24-07-2007 to Shri Martand Gomaji

Shardul who inturn sold the said land by registered deed to the assessee.

Since the land had been sold by Shri Balu Nivruti Kadali the CIT(A) held that he

had no right in the said land. Hence, making payment for road to Shri Balu

Nivruti Kadali appeared to be not logical. Hence, the onus having not been

discharged by the assessee, the contention of the assessee was rejected and

addition of Rs.20,00,000/- was upheld.

the aforesaid payment of Rs.20,00,000/- in cash was made to Shri Balu Nivruti

Kadali for right to alter road passing through the land which was purchased by

the assessee. He submitted that the right was with Shri Balu Nivruti Kadali. On

24-07-2007 when the land was sold by Shri Balu Nivruti Kadali to Shri Martand

Gomaji Shardul the right was there and he never passed on the said right to

ITA No.1743/PUN/2014 6 ITA No.1804/PUN/2014

Shri Martand Gomaji Shardul. It is clear from Para 5(2) of the said agreement.

Shri Martand Gomaji Shardul sold the said right to the assessee vide deed

dated 20-02-2008 with the same condition. On a later date, the assessee

acquired the right to alter the road and paid Rs.20,00,000/- by a document

dated 20-01-2010. The learned Authorized Representative for the assessee

stressed that both the Assessing Officer and the CIT(A) have made the

aforesaid addition on the ground that the payment was made in cash and the

person could not be produced. The CIT(A) further holds that Shri Balu Nivruti

Kadali had no right in the road. In reply, learned Authorized Representative for

the assessee stressed that Shri Balu Nivruti Kadali was an Adivasi and was not

traceable but the identity and genuineness of the transaction stands

established. The second plea raised by him was that where the assessee had

already expired then his wife was not in a position to produce the said person.

reliance on the orders of authorities below.

which arises in the present appeal is against the addition of Rs.20,00,000/-.

The said payment was made in cash to one Shri Balu Nivruti Kadali vide

document executed between the assessee and said Shri Balu Nivruti Kadali

which is a Notarized agreement dated 20-01-2010. But the background of the

issue is that Shri Balu Nivruti Kadali was the owner of a piece of land which

was sold by registered deed dated 24-07-2007 and 05-09-2007 to Shri Martand

Gomaji Shardul. The assessee has filed the copy of the said sale deed at page

34 to 86 of the paper book with English Translation separately filed. As per

Para 5(2), the road which was already constructed along East-West direction of

ITA No.1743/PUN/2014 7 ITA No.1804/PUN/2014

the property was agreed to be maintained as it was. The relevant part of Para

5(2) reads as under :

“Para 5(2) : The area given to you as described in points A to E are marked in red in the layout map attached. From the layout attached there is a Road constructed along the East-West of the property. The right for which are transferred to you along with the property. But the road constructed along the East-West direction of the property is to be maintained as it is and any activity carried out on the property should not affect the Road at any time in future and on this condition only the rights of the road are transferred to you along with this property.”

assessee and Para 5 of the registered document dated 04-02-2010 was on

similar lines, copy of which is placed at pages 87 to 113 of the paper book. In

other words, the position of road was not to be disturbed by the assessee and

no right was given to the assessee to change direction of the road. On a later

date, i.e. 20-01-2010, the assessee entered into an agreement with Shri Balu

Nivruti Kadali, copy of which is placed at pages 114 to 119 of the paper book

and the assessee sought permission to alter the road for approval of layout. As

per the terms agreed between the parties, the said permission was given and a

sum of Rs.20,00,000/- was paid in cash for the same. The assessee has also

mentioned in the said notarized document that no rights in the said road were

transferred on the earlier occasion to any person in any form or any

consideration was received for such transfer. The said document also

mentioned the trail of transaction between the parties, i.e. Shri Balu Nivruti

Kadali to Shri Martand Gomaji Shardul and then to the assessee. In the said

facts and circumstances where the transaction has been completed through the

written documents and a perusal of the notarized agreement dated 20-01-2010

placed at pages 114 to 119 of the paper book also reflect that the photo identity

of Shri Balu Nivruti Kadali was there and the agreement was duly notarized and

ITA No.1743/PUN/2014 8 ITA No.1804/PUN/2014

hence, the same merits to be accepted. Merely because the said person could

not be produced would not disentitle the assessee form the aforesaid claim of

expenditure especially in the circumstances where the assessee was no more

and the case was being represented by his wife (as legal heir). Accordingly, we

direct the Assessing Officer to allow the claim of the assessee.

i.e. against the legal issue of computation of accumulated profits for the

purpose of section 2(22)(e) of the Act, the issue raised is purely legal and the

same is admitted for adjudication.

accumulated profits for the purpose of section 2(22)(e) of the Act, the current

profits of the lender company have to be excluded. It was also pointed out at

the start of the year, the accumulated profit of the lender company was Nil and

therefore, no addition u/s.2(22)(e) was warranted. In this regard, both the

Assessing Officer and CIT(A) had not accepted the plea of the assessee.

reliance on the judgment of Hon’ble Gujarat High Court in CIT Vs. M.B.

Stockholding (P) Ltd. reported in (2015) 64 taxmann.com 138 (Gujarat) and the

decision of Pune Bench of the Tribunal in Rajmal Lakhichand Vs. JCIT, Range-

1, Jalgaon reported in (2018) 92 taxmann.com 94 (Pune-Trib.).

of the CIT(A).

which arises before us for adjudication is against the addition made u/s.2(22)(e)

ITA No.1743/PUN/2014 9 ITA No.1804/PUN/2014

of the Act. The assessee’s case is that no such addition is warranted as the

accumulated profits at the start of the year was NIL in hands of the lender

company. It was also pleaded that current year’s profits of the lender company

have to be excluded for computing the accumulated profits for the purpose of

section 2(22)(e) of the Act. We find that the said issue raised by the assessee

is squarely covered by the judgment of Hon’ble Gujarat High Court in CIT Vs.

M.B. Stockholding (P) Ltd. (supra) wherein it was held as under :

“4.1 Having heard Mrs. Bhatt, learned advocate appearing on behalf of the Revenue and considering the provisions of Section 2(22)(e) of the Act, more particularly, Explanation 2 to Section 2(22)(e) of the Act, it cannot be said that the learned Tribunal has committed any error in directing the Assessing Officer not to include the current profit to be part of accumulated profit while determining the amount of deemed dividend under Section 2(22)(e) of the Act. While determining the amount of deemed dividend under Explanation 2 to Section 2(22)(e) of the Act, the current profit was not required to be included to be part of accumulated profit. As such, as observed by the learned Tribunal, the issue is already settled by the Hon'ble Supreme Court against the Revenue in the case of Associated Banking Corporation of India Ltd. v. CIT [1965] 56 ITR 1 by which, the view taken that the profit accrues when the books of account are closed.

the said concern Shree Ninad Builders Contractors & Land Developers Pvt. Ltd.

The accumulated profits at the start of the year were NIL. The share capital

issued and paid-up capital and also Reserves & Surplus as on 01-04-2009

were NIL. Following the parity of reasoning as laid down by the Hon’ble

Gujarat High Court (supra), we hold that no addition is to be made in the hands

ITA No.1743/PUN/2014 10 ITA No.1804/PUN/2014

of the assessee by invoking the provisions of section 2(22)(e) of the Act.

Hence, the additional ground of appeal raised by the assessee is allowed.

against the pro-rata deduction allowed u/s.80IB(10) of the Act. Grounds of

appeal No. 1 and 2 raised by the Revenue are against the deletion on the

aforesaid issue by the CIT(A).

CIT(A) while deciding the issue u/s.2(22)(e) of the Act. Since we have already

decided the issue of invoking the provisions of section 2(22)(e) of the Act on

jurisdictional basis, ground of appeal No.3 raised by the Revenue becomes

academic and the same is dismissed.

the issue are that the assessee had constructed housing project at Karjat, Dist.

Ahmednagar. The said project was commenced vide commencement

certificate dated 20-12-2015 issued by the Gram Panchayat Karyalay, Karjat.

The project consisted of 126 residential units and the due date of completion of

the project was 31-03-2011. The completion certificate in respect of 126

residential units was issued on 25-03-2010 and consequent thereto the

assessee claimed deduction u/s.80IB(10) of the Act in assessment year 2010-

with the Inspector visited the above housing project on 06-03-2012. As per the

visit, it was noticed by the Assessing Officer that construction of 5 units out of

126 units was still under progress and the same was not completed. The visit

was on 06-03-2012. The assessee claimed that the construction of 5 units was

completed prior to 31-03-2011 and only minor work like painting, tiling and door

ITA No.1743/PUN/2014 11 ITA No.1804/PUN/2014

fittings was remaining. The said additional work was requested and being

carried out, though the possession of the units was given to the customers

without doing the said work. The assessee also explained that it was not

necessary to complete the above work for obtaining the completion certificate.

However, the Assessing Officer did not accept the claim of the assessee and

held that the construction of housing project was not completed prior to

31-03-2011. The Assessing Officer also held that even the proportionate

deduction in respect of the units completed was not allowable to the assessee.

Hence, the entire deduction claimed u/s.80IB(10) of the Act was denied to the

assessee.

that 5 units out of 126 units were not habitable prior to 31-03-2011. However,

he holds that where the construction of remaining 121 units were complete in

all respect prior to the specified date, the assessee was entitled to pro-rata

deduction u/s.80IB(10) of the Act. In this regard, reliance was placed on the

decision of various High Courts and the Pune Bench of the Tribunal. The

Revenue is in appeal against the same.

the issue stands covered by a series of decisions including the decision of

Pune Bench of the Tribunal in DCIT Vs. M/s. Om Associates in ITA

No.1031/PUN/2016 order dated 06-06-2018 for the assessment year 2011-12.

Accordingly, we uphold the order of CIT(A) in allowing proportionate deduction

u/s.80IB(10) of the Act. Grounds of appeal No.1 & 2 raised by the Revenue are

thus dismissed.

ITA No.1743/PUN/2014 12 ITA No.1804/PUN/2014

Order pronounced on this 07th day of June, 2019.

Sd/- Sd/- (D.KARUNAKARA RAO) (SUSHMA CHOWLA) लेखा सद�य लेखा सद�य / ACCOUNTANT MEMBER �याियक �याियक सद�य सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य �याियक �याियक सद�य सद�य

पुणे Pune; �दनांक Dated : 07th June, 2019 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत 1. अपीलाथ� / The Appellant; 2. ��यथ� / The Respondent; आयकर आयु�(अपील) / The CIT (Appeals)-II, Nashik. 3. 4. The CIT-II, Nashik 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “ए” / DR ‘A’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.1743/PUN/2014 13 ITA No.1804/PUN/2014

Date 1. Draft dictated on 30-05-2019 Sr.PS 2. Draft placed before author 31-05-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.