ACIT, CIR. 43, KOLKATA vs. M/S K.B.DEVELOPERS, KOLKATA

There is a delay of 52 days on the part of the Revenue in filing this appeal before the Tribunal. Shri Mintu Roy, ACIT vide letter dated 03.03.2021 submits that there is no delay in filing this appeal on the ground that filing of any appeal extended or relaxation upto the 31.03.2021 which any time limit falls during the period from 20th March, 2020 to 31st December, 2020 vide Notification and Bill no. 116 of 2020 and published by Gazette of India Order no. 63 dated 29.09.2020 of the taxation and other laws (Relaxation and Management of Certain Provisions) Act, 2020 of Order No. 38 of 2020 at chapter II and prayed that the delay be condoned. Moreover he also submitted that due to the prevailing Covid-19 Pandemic situation, the offices of the assessee as well as the Government were not functioning, which was the cause of delay. The ld. Counsel did not raise any objection. Therefore, we condone the delay and dispose of the appeal on merit.

The assessee is a partnership firm which is engaged in the business of real estate. The original partnership firm consisted of 18 partners, out of which 10 partners retired on 27.05.2012. The assessee-firm filed its e- return of income for the assessment year 2013-14 on 30.07.2013 declaring its taxable income of Rs.12,21,75,410/-. The case was selected for scrutiny assessment. The Assessing Officer completed the assessment under section 143(3) of the Act on 31.03.2016 determining the total income of the assessee at Rs.22,30,85,410/-, inter alia, making an 2

The assessee filed the Cross Objection on the following grounds:- “(1) For that the ld. CIT(Appeals) should have held that the capital gain declared u/s 45(4) was not at all taxable since the partners who contributed the land in the partnership at the time of jointing the firm took it back at the time of retirement at the same value.

The CIT (D.R.) Mr. John Vincent explained the facts of the case as brought out by the Assessing Officer, as well as the CIT(Appeals) and submitted that the assessee’s claim that it had entered into different agreements for purchases of plots of land, during the year under consideration, with six different persons and had given them earnest money as advance for such purchase of land in accordance with the agreements and due to non-payment of balance consideration by the assessee within time, in all the cases and non-fulfilment of the terms and conditions of the contracts for purchases of land, the earnest money paid was forfeited by the sellers. As per the ld. CIT,DR, the agreement clause, that in the event of failure on the part of assessee to pay the balance amount of consideration by due date resulting into business loss is totally unbelievable. He referred to the assessment order and submitted that the Assessing Officer has rightly concluded that the deals entered into by the assessee were not a bonafide one or part of the business activity of the firm. He pointed out that the agreement for sale was entered into on 04.01.2013 and whereas it is alleged that the value of the property declined between the period 04.01.2013 to 18.02.2013 when the final payment was scheduled to be made, even though no extraordinary events such as war, civil unrest, famine, earthquake, deluge or sudden collapse in money market happened in the intervening period justifying the claim of the assessee that there was declined the value of the land. He referred to the submissions made by the assessee that, as per the agreements to sale dated 04.01.2013, the assessee firm expressed its desire for development of those plots of land for profit and entered agreements with the so called sellers, and whereas as per the written submission 4

On the issue of payment of commission, the ld. CIT D.R. relied upon the order of the Assessing Officer and submitted that the commission was paid for facilitating arbitration in connection with the so-called forfeiture of advance paid for the so-called agreement of purchase of plots of land. He referred to the arguments made, on the issue of loss on purchase of land or earnest money paid amounting to Rs.9,92,00,000/- and argued consequential brokerage and commission being bogus has to be disallowed.

Ld. Counsel for the assessee, on the other hand, relied on the order of the ld. CIT(Appeals) and submitted that the grounds of disallowance are brought out by the Assessing Officer in the remand report, copy of which is extracted by the ld. CIT(Appeals) in his order and that the basis of disallowance was factually and legally incorrect. He submitted that the

On the issue of allowability of brokerage, he submitted that the commission was required to be paid for obtaining and conducting of arbitration proceedings and connected services and that nexus was established with the business. He referred to the remand report given by the Assessing Officer to the ld. CIT(Appeals) and submitted that no adverse comment has been made by the Assessing Officer on this payment nor anyone was examined or there was a iota of evidence against the assessee. He relied on the order of the ld. CIT(Appeals) and prayed that the same be upheld.

Rival contentions heard. On a careful consideration of all the facts, papers on record, orders of the authorities below and case laws cited, we hold as follow:- Disallowance of Rs.9,92,00,000/-: The facts of the case are brought ut by the ld. CIT(Appeals) at pages 12 & 13 of his order as follows:- “The assessee during the year decided to purchase a property at Village-Sikaria, near Brindaban, Dist. Mathura, U.P. so that he can also enter into the business of development of the properties. The details of the said land are as under:- Name of seller Land Total Earnest area consideration money paid Sri Harish C. 17.96 9,87,80,000 1,97,00,000 Agarwal acres Rajat Agarwal 8.12 90,00,000 90,00,000 acres Suresh C. 17.27 1,90,00,000- 1,90,00,000 Agarwal acres Triple K. 17.28 1,90,00,000- 1,90,00,000 Distributors acres Co. Pvt. Ltd. Dhanprakash 17.28 1,90,00,000- 1,90,00,000 Gupta acres Dolphin 12.24 1,35,00,000- 1,35,00,00 Business acres Consultants Pvt. Ltd. Total 49,58,25,000 9,92,00,000

The Assessing Officer disallowed this claim of the assessee for the following reasons:- (i) The entire events do not suggest that the deals entered by the assessee were a bona fide one and as a part of the business activities of the firm;

Before arbitrator, ld. Counsel stated that the assessee entered into the agreement with the hope they will be able to arrange a partner who will finance and that they tried to arrange finances for this deal. There is no evidence to controvert this submission. The arbitrator has given a finding of fact that the value of the property declined between the period 04.01.2013 to 18.02.2013. The Assessing Officer has not found any evidence to controvert these findings of the arbitrator. Genuineness of this agreement to sale cannot be disputed by the Assessing Officer unless he examined the sellers of the land and unless he collects evidence to show that these are manipulated agreements which are arranged in connivance with other parties, for financial gain of the assessee and others involve in the events.

The ld. CIT(Appeals) at para 5.3.7 of his order narrated the facts and thereafter at para 5.3.10 referred to the judgment of the Hon’ble Supreme Court in the case of Satish Batra –vs.- Sudhir Rawal dated 18.10.2012 in Civil Appeal No. 7588 of 2012. The Hon’ble Supreme Court in the case of Satish Batra came to the conclusion that the seller in this case was justified in forfeiting the amount of Rs.7,00,000/- as per the relevant clause, since the earnest money was primarily a security for the due performance of the agreement and the seller is entitled for forfeit the entire deposit. The undisputed fact is that the assessee is engaged in the business of real estate and that these payments were made in the course of business and that the earnest money was forfeited resulting into business loss of the assessee.

Such loss is allowable as a deduction as held in the following cases:- (i) Jawala Prosad Radha Kishan [79 ITR 580 (Allh.); (ii) Inden Bislers [91 ITR 427 (Madras)]; (iii) Kishangunge Madira Sangh [167 ITR 393].

The assessee has disputed the disallowance of Rs.17,10,000/- being brokerage paid for which the evidences were filed. The assessee claims that it was proved that this disallowance was made based on the conclusion drawn by the Assessing Officer on the first time of disallowance of loans, forfeits the earnest money deposit. There is evidence of payment and services. No enquiries were made by the Assessing Officer. No adverse evidence is collected. Inference was drawn without any basis. The said payment was made for the purpose of business. In view of the above discussion and consistent with the view taken by us in the previous disallwoance, we uphold the order of the ld. CIT(Appeals) and dismiss this ground of Revenue.

The ld. CIT(Appeals) at page 29 of his order states that (i) the persons who received the commission confirmed the same and submitted their income tax details, (ii) income-tax details demonstrated that these commission agents have disclosed the amount in question as their income by filing the return of income. Nothing is brought on record by the Assessing Officer to dislodge the claim of the assessee or to show that the money paid as commission has come back to the assessee. Thereafter the ld. CIT(Appeals) relied on the judgment of the Hon’ble Jurisdictional High Court in the case of Alpha Hydronics Pvt. Limited in ITA No. 549 of 2004 and allowed the claim of the assessee. We find no infirmity in the order of the ld. CIT(Appeals).

In the result, the appeal of the Revenue is dismissed.

Now we take up the Cross Objection being C.O. No. 8/KOL/2021 filed by the assessee on the following grounds:-

The facts relating to these grounds of Cross Objection are as follow:- The assessee is a partnership firm. This partnership firm originally consisted of 18 partners. Out of these 18 partners, 10 partners retired on 27.05.2012. Some of the partners contributed their land at cost, to the partnership firm, when the partnership was formed in the assessment year 2008-09. After retirement on 27.05.2012, these partners are stated to have taken back this land so contributed and the partnership firm has returned the land so contributed by them, when the partnership firm was formed in the year 2008-09.

The assessee-firm computed capital gains as per section 45(4) of the Act on these transactions and offered to tax the same as per provisions of long-term capital gain and the rate of tax applicable thereon. The Assessing Officer was of the view that this amount is assessable as business income at normal rate. On appeal, the ld. CIT(Appeals) held that the amount in question is taxable at the rate applicable to long-term capital gain.

In this Cross Objection, the assessee has raised the fundamental issue as to whether the amount in question is taxable or not. The assessee relied on the judgment of the Hon’ble Madras High Court in the case of M/s. National Company –vs.- ACIT in Tax Case Appeal No. 365 of 2009

After hearing rival submissions, we find that the assessee has suo motu offered to tax the amount of gain that arose on this transaction of retirement of partners under the head “long-term capital gains”. It is not a case where the assessee claims that the partners of the assessee-firm retired and consequent to settlement of accounts these retiring partners had withdrawn such land from the firm. The ld. Counsel for the assessee states that the land contributed to the assessee-firm by the partners at the time of formation of the firm had withdrawn by the partners at the time of retirement from the firm. This cannot be a case of settlement of accounts on retirement. It is not a case where retiring partners are merely releasing or relinquishing all their rights and interest in the firm on retirement and receiving the value of one’s interest in the firm. No such documentary evidence was produced before us or before the lower authorities. No relief can be granted to the assessee in the absence of any details. This issue requires investigation into fresh facts which are not on record. Hence this additional ground cannot be admitted. Under these circumstances, we dismiss this ground of Cross Objection.

In the result, the Revenue’s appeal as well as Cross Objection by the assessee both are dismissed. Order pronounced in the open Court on April 22, 2021.