ASSOCIATED BOMBAY CINEMAS P.LTD,MUMBAI vs. DCIT 3(1), MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

1. (i) The learned CIT(A)-5 erred in and law and on facts in holding that the sale consideration on the sale of land admeasuring 1601 sq. yards and building constructed thereon known as "Standard Cinema Building" was Rs. 11 crores and not Rs. 9 crores as declared by the appellant in its return of income.

(ii) The learned CIT(A)-5 erred in and law and on facts in not appreciating that Rs.2 crore payable to M/s Urmi Developers Pvt. Ltd. (UDPL) never accrued to the appellant and hence could not be taxed as a part of the sale consideration in the hands of the appellant.

(iii) The learned CIT(A)-5 erred in and law and on facts in not appreciating the Rs.2 crore paid by the purchaser, Crossword Beverages Pvt. Ltd. (CBPL), to UDPL was diverted to UDPL by way of an overriding title and hence (iv) The learned CIT(A)-5 erred in and law and on facts in not appreciating that under the scheme of Income Tax Act, it is only the real income of the assessee that can be subjected to tax and there by not appreciating that the real income of appellant was only Rs. 9 crores (towards land and building) which it received in this transaction and not anything more.

(v) The learned CIT(A)-5 erred in and law and on facts in not appreciating that the purchaser CBPL, had separately negotiated with UDPL to purchase their rights for which CBPL gave them a separate cheque of Rs. 2 crore to UDPL.

(vi) The learned CIT(A)-5 erred in and law and on facts in holding that the the Rs. 2 crores paid by CBPL to UDPL was not allowable as a deduction u/s 48(1) being cost incurred inconnection with transfer of the capital asset

2. The appellant vide it letter dated 10-12-12 filed an additional ground on appeal as under: " The appellant had incurred the following expenses in connection with the transfer of land and Strand Cinema Building to M/s Crossword Beverages Pvt. Ltd: i) Brokerage 9,15,0007- ii) Compensation for vacating shop 25,00,0007- iii) Legal fees 16,65,4597- iv) Property tax 3.20.0007- 54.00.4597- The learned CIT(A)-5 erred in law and on facts in not considering the claim of the appellant on any of the above four counts and not allowing any of the above expenses as costs incurred towards transfer of land and Strand Cinema Building as claimed by the appellant in the return of income filed by it."

The learned CIT(A)-5 however, held that out of the above expenses brokerage amount of Rs. 9,15,0007-, compensation for vacating land- Rs. 251acs and legal fees- Rs. 16,65,4597- is an allowable expenditure connected with transfer of land. However, property tax amounting to Rs. 3,20,0007- has nothing to do with the transfer of land and hence not allowable."

The appellant contends that the Learned CIT(A)-5 erred in law and on facts in holding that: i. Property tax amounting to Rs. 3,20,0007- had nothing to do the transfer of land and was hence not allowable, and ii. Without prejudice to the above the appellant contends that if the learned CIT(A)-5 was hold that the property tax was not allowable as a expense inconnection transfer of capital asset then he should have allowed the same as a business expense.

3. The appellant craves leave to add, amend, alter or delete any or all of the above grounds of appeal either on or before the decision of this appeal.

Ground No. 1 (i) to (vi) 5. These grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. CIT(A) in holding that the sale consideration on the sale of land admeasuring 1601 sq. yards and building constructed thereon known as "Standard Cinema Building" was Rs. 11 crores and not Rs. 9 crores as declared by the assessee in its return of income and for not appreciating that Rs. 2 crore payable to M/s Urmi Developers (UDPL) never accrued to the assessee and hence could not be taxed as part of sale consideration and thus in this way, the real income of the assessee was Rs. 9 crore, therefore we thought it fit to dispose of the same by this common order.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). Ld. CIT(A) has dealt 3.5 The facts of the case have been considered :

• The Index 2 issued by Sub Registrar Murnbai clearly mentions the sale of land measuring 1248.03 sq metres (equivalent 1601 sq yards) by ABC Pvt Ltd to CBPL • Respective Board resolutions of CBPL as well as ABC Pvt Ltd (part of the sale deed) clearly mentions purchase/sale of land measuring 1601 sq yards • The Schedule to the sale deed mentions sale of land measuring 1 543 sq yards. The MOD dated 14.08.2007 mentions property as measuring 1601 sq yards alongiwth Strand Cinema Bldg. . .

• Authorisation dated 07.11.2007 given by CBPL to ABC authorizing ABC to approach and negotiate with the occupants of Dolli Chambers for purpose of execution and registration of lease deed failing which Purchaser shall execute the lease deed with Dolli Chambers directly at nominal yearly lease rent. It clearly shows that the CBPL acknowledges that they have purchased the whole land measuring 1601 sq yards (which includes Land to be leased to Dolli

8 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. Chambers) and hence they have authorized ABC to negotiate with the residents of Dolli Chambers on their behalf and in the event of non execution they can execute the lease deed on their own.

« Clause 21 of MOD gives the future rights of purchase of TDR and utilizing the same for extra FSI over the property to the purchaser.

• Under these facts and circumstances it is clear that the appellant has sold 1601 sq yards of the land to CBPL and not 895 sq yards of the land as held by the AO.

3.6 This ground of appeal is therefore allowed.

7. After having gone through the facts of the present case, we find that Ld. CIT(A) while appreciating the facts of the present case, which are contained in para no. 3 (3.1 to 3.4) of its order, had rightly concluded that Index 2 issued by Sub Registrar Mumbai clearly mentions the sale of land measuring 1248.03 sq metres (equivalent 1601 sq yards) by ABC Pvt Ltd to CBPL, Respective Board resolutions of CBPL as well as ABC Pvt Ltd (part of the sale deed) clearly mentions purchase/sale of land measuring 1601 sq yards, The Schedule to the sale deed

9 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. mentions sale of land measuring 1 543 sq yards. The MOD dated 14.08.2007 mentions property as measuring 1601 sq yards alongiwth Strand Cinema Bldg, Authorisation dated 07.11.2007 given by CBPL to ABC authorizing ABC to approach and negotiate with the occupants of Dolli Chambers for purpose of execution and registration of lease deed failing which Purchaser shall execute the lease deed with Dolli Chambers directly at nominal yearly lease rent. It clearly shows that the CBPL acknowledges that they have purchased the whole land measuring 1601 sq yards (which includes Land to be leased to Dolli Chambers) and hence they have authorized ABC to negotiate with the residents of Dolli Chambers on their behalf and in the event of non execution they can execute the lease deed on their own, Clause 21 of MOD gives the future rights of purchase of TDR and utilizing the same for extra FSI over the property to the purchaser, thus had rightly concluded that assessee had sold 1601 sq yards of the land to CBPL and not 895 sq yards of the land as held by the AO.

10 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. No new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the assessee stands dismissed.

Ground No. 2 (i) & (ii). 8. These grounds raised by the assessee are inter-connected and inter related and relates to challenging the order of Ld. CIT(A) in not considering the claim of the assessee in respect of brokerage, compensation for vacating shop, legal fees and property tax and not allowing its expenses as costs incurred towards transfer of land and Strand Cinema Building, therefore we thought it fit to dispose of the same by this common order.

11 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. 9. We have heard Ld. DR at length and we have also perused the material placed on record as well as the orders passed by revenue authorities.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). Ld. CIT(A) has dealt with this ground in para no. 7.3 of its order and the same is reproduced below:- 7.3 The facts of the case have been considered : 7.3.1 Brokerage amount of Rs. 9,15,000/- /compensation for vacating land - Rs, 25 lacs/legal fees - Rs, 16,65,459/- is an allowable expenditure connected with transfer of land. However, property tax amounting to Rs. 320,000/- has nothing to do with the transfer of land and hence not allowable. 7.3.2 The break-up of the brokerage expenses/compensation for vacating land/legal fees is apportioned towards sale of land and Strand Cinema bldg in proportion to their sale value is as under: Consideration of Land Sold Rs. 10.85,01,500/- Consideration of Strand Cinema Building Rs. 20.00.000/- Total Rs.11.05.01.500/- Total costs incurred in connection of transfer: Brokerage 9,75,000/- Compensation for vacating shop 25,00,000/-. Legal fees 16.65.459/-

12 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. 50.80.459/- Transfer costs apportionable to land sold: 50,80,459 * 10,85,01,500/11,05,01,500= Rs. 49,88,506/- Transfer costs apportionable to Strand building sold: 50,80,459 * 20,00,000/71,05,01,500 =Rs. 919537- Total Rs. 50.80.459/- 7.3.3 The AO may verify these expenses. If the expenses are found to be genuine the same are allowable as cost of transfer of land/cost of transfer of Strand Cinema bldg as per the proportion given above.

7.3.4 This ground of appeal is accordingly disposed off.

10. After having gone through the facts of the present case, we find that Ld. CIT(A) while appreciating the facts of the present case had rightly concluded that Brokerage amount, compensation for vacating land, legal fees are allowable expenditure connected with transfer of land. However, property tax has nothing to do with the transfer of land and hence not found allowable. Thus, necessary direction were given by the Ld. CIT(A) to AO verification of these expenses.

13 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. Moreover no new facts or contrary judgments have been brought on record before us in order to controvert or rebut the findings so recorded by Ld. CIT(A). Therefore, we see no reasons to interfere into or deviate from the findings recorded by the Ld.CIT(A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, these grounds raised by the assessee stands dismissed.

Ground No. 3. 11. This ground raised by the assessee is general in nature, thus requires no specific adjudication.

ITA No. 4907/Mum/2013 for AY 2008-09 13. Now we take up for AY 2008- 09 filed by the revenue. Since we have already decided ground no. 1 in AY 2007-08 on merits and 14 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. in the present appeal, identical ground has been raised, therefore, following our own decision in ITA No. 4382/Mum/13 on ground no. 1, we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis. Consequently, ground no. 1 raised by the revenue stands dismissed.

Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). Ld. CIT(A) has dealt 6.3 The facts of the case have been considered :

• The appellant has closed the Strand Cinema in 1991 and the appellant sought the permission of the Government and BMC for redevelopment/structural changes for building commercial complex, some shops on the ground floor and mini theatre on 1st and 2nd floor. The project took time from 1991 and final approvals for such alternations materialized in 2009. After the closure of the theatre expenses incurred towards re-construction of the cinema building had been debited under the head "work in progress" as under: Sr.no. Financial Year Amount as per Balance Sheet 1/04/01 to 31/03/02 1,01,16,253.28 1. 2. 1/04/02 to 31/03/03 1,03,60,459.12 3. 1/04/03 to 31/03/04 1,14,47,635.12 4. 1/04/04 to 31/03/05 1,33,50,514.28 5. 1/04/05 to 31/03/06 1,38,37,938.78 1/04/06 to 31/03/07 1,36,32,511.17 6.

 The appellant still owns 7 shops which as per the consent terms dated 09.05.2012 (entered into with the tenant filed before the Bombay High Court), an order

16 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. passed by the Hon'ble Bombay High Court on 10.05.2012 in which it was agreed by the appellant and the tenants that the shops would be sold in the open market and revenue would be shared 75%:25%.  The appellant is therefore still maintaining and carrying on its business. It has to dispose off 7 shops. The appellant is having employees and running a regular office, paying electricity and telephone expenses etc.  Under these facts it cannot be said that the appellant's business has closed down.  Accordingly, the various expenses debited in the P&L A/c as under are allowable subject to verification by the AO : Administrative Expenses Amount Courier Charges 4380.00 Electricity charges 15656.00 Miscellaneous expenses 868.00 Office Renovation 10000.00 Printing and Stationeries 425.00 Professional Fees 45000.00 TDS(Professional fees) 1073.00 Salary and Wages 518000.00

17 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. Telephone Charges 65879.31 Revalidation fees (BMC) 0 Mobile charges 7076.00 Security charges 115500.00 Service and Maintenance charges 12970.00  As regards the write off of work in progress amounting to Rs. 1,50,41,169/- it has been pointed out that the assessee has been trying to re- develop/carry out substantial reconstruction after the closure of Strand Cinema in 1991 by way of redevelopment plans in the existing cinema building converting it into commercial complex/some shops on ground floor and mini theatre on 1st and 2nd floor. For this purpose the various expenses incurred have been debited under the head "work in progress" as detailed aforesaid. The appellant has sold off the Strand Cinema Bldg during the year under consideration., However, 7 shops are still with the appellant which as per the consent terms dated 09.05.2012 and order dated 10.05.2012 of the Bombay High Court - the appellant has agreed with the tenants that the shops would be sold in the open market and the revenue would be shared as 75% is to 25%. Accordingly, the entire amount of work in 18 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. progress amounting to Rs. 1,50,41,169/-(which includes the amount attributable towards 7 shops still with the appellant) shall not be written off. Only the proportionate amount of the area sold to CBPL shall be allowed to written off as Strand Cinema stands disposed off during the year. Accordingly, the amount allowed to be written off is worked out at Rs. 1,33,22,178/-as under :-

(i) Total area (built up) 17500 sq.ft. (ii) Total area sold to CBPL 15,500 sq.ft. (iii) Amount lying to debit of Work & Progress. Rs. 1,50,41,169.17 (iv) Amount that should have been written off: 1,50,41,169.17*15,500/17500= Rs.1,33,22,178/- 6.4 This ground of appeal is partly allowed.

16. After having gone through the facts of the present case, we find that Ld. CIT(A) while appreciating the facts of the present case had rightly concluded that the assessee had sold off the Strand Cinema Bldg during the year under consideration.

19 & 4907/Mum/2013 Associated Bombay Cinemas Pvt. Ltd. However, 7 shops are still with the assessee which as per the consent terms dated 09.05.2012 and order dated 10.05.2012 of the Bombay High Court - the assessee has agreed with the tenants that the shops would be sold in the open market and the revenue would be shared as 75% is to 25%. Accordingly, Ld. CIT(A) had rightly held that the entire amount of work in progress amounting to Rs. 1,50,41,169/- (which includes the amount attributable towards 7 shops still with the appellant) shall not be written off. Only the proportionate amount of the area sold to CBPL shall be allowed to written off as Strand Cinema stands disposed off during the year. Accordingly, allowed the amount to be written off and worked out the same at Rs. 1,33,22,178/- by giving bifurcation.