GIGAPLEX ESTATE PVT. LTD. (FORMERLY KNOWN AS B. RAHEJA BUILDERS PVT. LTD.),MUMBAI vs. DCIT CENT. CIR. 4(2), MUMBAI

O R D E R

PER RAMIT KOCHAR, Accountant Member:

raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:- “1. In upholding that the amount payable by the Appellant to Om Metals Ltd ('OM’) and Wellwisher Construction and Finance Pvt Ltd ('WW') amounting to Rs.87.05 crores reflected in its books of accounts under the head 'Inventories', is a non-business expenditure.

2. In upholding the disallowance of interest expense attributable to the monies borrowed for financing the payments to OM and WW and reducing such interest from the value of 'Inventories'. “

3. The brief facts of the case are that the assessee is engaged in the business of real estate developers and constructions. The assessee is involved in the development of IT Park situated at Plot No. I.T 5 (MIDC) Airoli Knowledge Park, Navi Mumbai. The assessment of the assessee for AY 2006-07 was reopened by Revenue on 28.05.2012 on account of an amount of Rs. 100.80 crores paid/payable by the assessee to two parties namely M/s. Well Wisher Constructions and Finance P. Ltd. and M/s OM Metals Limited . The amount of Rs. 13.75 crore were reversed out of the aforesaid amounts in AY 2007-08. The assessee had debited interest attributable on the aforesaid amount debited to inventory in the books of accounts of the assessee and in audited Financial Statements. In the year under consideration , it was observed by the AO that Rs. 22.17 crores were debited by the assessee to interest and finance charges which included borrowing costs with respect to various payments including payables to M/s. Well Wisher Constructions and Finance P. Ltd. and M/s. OM Metals Limited. Since the payments to these two aforesaid parties to the tune of net amount of Rs. 87.04 crores( after reversal of Rs. 13.75 crores) were already disallowed by the AO considering the same to be sham transactions, the borrowing costs made by the assessee on account of payments to these two aforesaid parties were also disallowed from the inventories. The average rate of borrowing by the assessee were worked out by the AO @13.5% per annum which led to the disallowance of interest to the tune of Rs. 95,17,500/- with respect to borrowings on amount paid/payable to these two parties namely M/s. Well Wisher Constructions and Finance P. Ltd. and M/s. OM Metals Limited .The AO observed that the said amount of Rs. 95,17,500/- was debited to inventories by the assessee which stood disallowed by the AO and the AO directed the said sum to be reduced from inventories in the financials of the assessee , vide assessment order dated 26.03.2015 passed u/s 143(3) by the AO, the working of which is as under:- From To Days Principal Rate of Interest Amt interest Well Wisher 31.03.2012 365 35,250,000 13.50% 4,758,750 Constructions 4,758,750 and Finance P. Ltd. 01.04.2011 OM Metals 31.03.2012 365 35,250,000 13.50% 4,758,750 Limited 4,758,750 01.04.2011 Total 95,17,500

4. The matter reached Ld. CIT(A) at the behest of the assessee wherein assessee filed first appeal before learned CIT(A), who by following his own appellate order dated 26.11.2015 for AY 2006-07 disallowed the said interest of Rs. 95,17,500/- on borrowings with respect to amount paid/payable to M/s Well Wisher Constructions and Finance Private Limited and Om Metals Limited, which was debited by the assessee to inventories/closing work-in-progress vide appellate order dated 13.07.2016.

5. That is how assessee has now come before the tribunal wherein second appeal is filed by the assessee challenging the decision of learned CIT(A) before the tribunal . The Ld. Counsel for the assessee at the outset submitted that the issue in this appeal before the tribunal is covered in favour of assessee by Mumbai-tribunal order in & 1137/Mum/2016 for AY 2007-08, 2008-09 & 2006-07 respectively vide common order dated 10.11.2017 in assessee’s own case wherein Mumbai-tribunal has passed detailed order upholding the genuineness of the payments made/payable by the assessee to aforesaid parties M/s. Well Wisher Constructions and Finance P. Ltd. and M/s. OM Metals Limited to the tune of Rs. 100.80 crores for relinquishing their rights under a JV agreement wherein land of 50 acres was allotted by MIDC for setting up I T Park at Navi Mumbai . The said order of the tribunal dated 10.11.2017 is placed on record by the assessee before the tribunal which is placed in file. Further it is also brought to the notice of the bench that the Mumbai-tribunal vide common order dated 19.03.2018 in ITA no. 1134, 1135 & 1136/Mum/2016 for AY 2009-10, 2010-11 and 2011- 12 respectively has decided the issue in favour of the assessee. The Ld. DR fairly agreed that so far as issue in present appeal are concerned , the issue is covered in favour of the assessee by tribunal decision. At this point of time the bench asked the Ld. Counsel for the assessee to submit the details as to the status of the project for which said plot of land admeasuring 50 acres was acquired by the assessee from MIDC at Navi Mumbai for setting up I T Park and it was submitted by the Ld. Counsel for the assessee that the project for setting up I T Park on said plot of land at Mumbai was still under the stage of construction during the year under consideration before the tribunal. The directions were issued by the Bench to learned counsel for the assessee to file copies of audited financial statements of the assessee for financial year 2011-12 relevant to AY 2012-13 before us. In compliance thereof the directions of the Bench, the learned counsel has submitted audited financial statements of the assessee for financial tear 2011-12 which are placed on record in file.

“5.8. We have considered the rival contentions and perused the relevant records placed before us including case laws cited by the parties. The undisputed facts are that the land measuring 50 acres was allotted to assessee and two other JV partners OM and WW by MIDC upon a payment of Rs. Rs.50,58,62,500/-. The JV partners decided to surrender their interest in the land in favour of the assessee upon a payment of 100.80 Cr. The necessary sanction for the said transaction was obtained from MIDC. The assessee accounted and provided for the transaction in its books of accounts as on 31.3.2006 by increasing the cost of land/inventories and correspondingly crediting the two JV partners with Rs. 50.40 Cr each and showing the remaining payable at the year end under the head sundry creditors. The transaction was accepted by the AO during the scrutiny proceedings after raising specific query which was replied by the assessee by filing the details of inventories and sundry creditors and it was only after satisfying himself, the AO framed assessment u/s 143(3) of the Act vide order dated 22.12.2008. In the mean time the assessment of OM was completed for the assessment year 2008-09 in December,2010 in Jaipur approximately two years after the completion of assessment of the assessee and the AO at Jaipur forwarded copy of the assessment order with relevant annexures to the AO of the assessee. Thereafter the AO also sought the details of the transaction from the assessee vide letter dated 19.05.2010 and re-opened the case of the assessee by issuing notice u/s 148 of the Act on 25.05.2012 after four years from the end of the relevant assessment year. In the first para of the reasons recorded by the AO, he admitted that the assessee vide letter dated 18.10.2008 supplied the details of sundry creditors. Thereafter ,the AO while framing order u/s 143(3) r.w.s. 148 of the Act reduced the inventories of the assessee by Rs. 100.80 Cr on the ground that the transaction was a sham and non genuine despite the fact the same transaction was treated as genuine in the hands of OM and WW the two JV partners to whom the assessee paid Rs. 50.40 Cr each for acquiring the interest in the land. In the case of OM, the receipt from the assessee was treated as capital receipt but the same was treated as revenue receipts by the AO in the assessment framed u/s 143(3) of the Act which was accepted by OM and paid due taxes thereon. In the case of the WW the money received from the assessee was treated as capital receipt and MAT was paid thereon. The AO accepted the same in the assessment framed u/s 143(3) of the Act however the CIT invoked revisionary jurisdiction u/s 263 of the Act which stood quashed by the ITAT. In other words the amounts paid by the assessee to OM and WW were taxed in their hands as genuine transaction by the deptt. It is difficult to understand that when the revenue treated the transaction as genuine in the hands of two JV partners , how the same transaction can be non genuine and sham in the hands of the assessee. Moreover the chronology of events clearly shows that the application was made in the joint names of the assessee, OM and WW. The land was also allotted by MIDC on the said application made by the three joint venture partners . Thereafter MIDC on an application made by the JV partners approved the relinquishment of interest in the said land by two JB(sic. JV) partners OM and WW in favour of the assessee on payment of specified premium. It is relevant to note that records of MIDC proved that the assessee , OM and WW were the joint owners of the plot of land till the relinquishment of rights by OM and WW was approved by MIDC which showed the transaction being genuine and out of business consideration. A business decision was taken by the assessee to purchase the interest from two JV partners to which two partners also agreed to sell their interest to the assessee which is also a business decision taken by them in the best interest of the business. Moreover all the three parties are unrelated parties and not related to each other. Therefore the transaction can not be said to be non genuine and sham. Further we failed to understand as to how a transaction which is assessed to tax in the hands of two JV partners by the revenue treating the same as genuine was treated as sham in the hands of assessee. In our considered view the assessee has entered into the transaction of purchasing the interest in the land from the said two parties and after purchase, became the exclusive owner of the said land and therefore the said expenditure is wholly and exclusively incurred for the purpose of business and should be allowed to the assessee. Beside, the involvement of multiple agencies including Govt authorities like MIDC and AOs of OM and WW , professional consultants and escrow agents specially when none of them were related to each other further lends credence to the contention of the ld AR. The mere irregularities in the documents as pointed by the ld DR can not be the basis to draw conclusion as to genuineness of the transaction. So far as the reasonableness of the transaction is concerned , the valuation by the registered valuer and the DVO were largely same and can not be ignored and lost sight of while deciding reasonableness of the transaction. After considering the rival contentions, records , written submissions and case laws filed by both the parties we are of the view that the order of PCIT upholding the order of AO treating the purchase of interest in the land from OM and WW as sham is incorrect and can not be sustained. The decisions relied by the revenue are also distinguishable on facts and therefore not applicable. In view of the above discussions , we set aside the order of PCIT on this issue and accordingly appeal of the assessee is allowed. AO is directed accordingly.

6. The issue raised in ground no 3 is against the upholding of disallowance of interest paid on the borrowings taken for payment to WW and OM as done by the AO by reducing the cost of inventories. 6.1. Since we have decided the ground no 2 in favour of the assessee holding the transaction to be true on the ground that the same transaction which was treated as genuine in the hands of both the JB(sic. JV) partners namely WW and OM, the same can not be held to be non genuine and sham in the hands of assessee. In view of the said findings any interest which the assessee has incurred on the money borrowed has to be allowed to the assessee and accordingly we direct the AO to delete the disallowance. The ground no 3 is allowed. & ITA No.1133/Mum/2016 7. The issues raised by the assessee in these appeals are identical as have been decided by the us in ITA No. 1137/Mum/2016. Therefore our decision in ITA No.1137/Mum/20146 would ,mutatis mutandis, apply to these appeals as well. Accordingly the appeals of the assessee are partly allowed.

“ 7. Under this issue the assessee has challenged the finding of the CIT(A) in which the CIT(A) has confirmed the order passed by the AO in connection with amount payable to two parties namely Om Metals Ltd. and Wellwisher Construction & Finance Pvt. Ltd. amounting to Rs.87.05 crores reflected in its books of accounts under the head of inventories which was held as non-business expenditure. At the very outset, the Ld. Representative of the assessee has argued that this issue has duly been covered by the finding of the Hon’ble ITAT in the assessee’s own case in 1133 & 1137/M/2016 for the A.Y. 2006-07, 2007-08 & 2008-09 dated 10.11.2017. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deemed it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case (supra) on record. The relevant finding has been given in para no. 5.8 which is hereby reproduced below as under: - “5.8. We have considered the rival contentions and perused the relevant records placed before us including case laws cited by the parties. The undisputed facts are that the land measuring 50 acres was allotted to assessee and two other JV partners OM and WW by MIDC upon a payment of Rs. Rs.50,58,62,500/-. The JV partners decided to surrender their interest in the land in favour of the assessee upon a payment of 100.80 Cr. The necessary sanction for the said transaction was obtained from MIDC. The assessee accounted and provided for the transaction in its books of accounts as on 31.3.2006 by increasing the cost of land/inventories and correspondingly crediting the two JV partners with Rs. 50.40 Cr each and showing the remaining payable at the year end under the head sundry creditors. The transaction was accepted by the AO during the scrutiny proceedings after raising specific query which was replied by the assessee by filing the details of inventories and sundry creditors and it was only after satisfying himself, the AO framed assessment u/s 143(3) of the Act vide order dated 22.12.2008. In the mean time the assessment of OM was completed for the assessment year 2008-09 in December,2010 in Jaipur approximately two years after the completion of assessment of the assessee and the AO at Jaipur forwarded copy of the assessment order with relevant annexures to the AO of the assessee. Thereafter the AO also sought the details of the transaction from the assessee vide letter dated 19.05.2010 and re-opened the case of the assessee by issuing notice u/s 148 of the Act on 25.05.2012 after four years from the end of the relevant assessment year. In the first para of the reasons recorded by the AO, he admitted that the assessee vide letter dated 18.10.2008 supplied the details of sundry creditors. Thereafter ,the AO while framing order u/s 143(3) r.w.s. 148 of the Act reduced the inventories of the assessee by Rs. 100.80 Cr on the ground that the transaction was a sham and non genuine despite the fact the same transaction was treated as genuine in the hands of OM and WW the two JV partners to whom the assessee paid Rs. 50.40 Cr each for acquiring the interest in the land. In the case of OM, the receipt from the assessee was treated as capital receipt but the same was treated as revenue receipts by the AO in the assessment framed u/s 143(3) of the Act which was accepted by OM and paid due taxes thereon. In the case of the WW the money received from the assessee was treated as capital receipt and MAT was paid thereon. The AO accepted the same in the assessment framed u/s 143(3) of the Act however the CIT invoked revisionary jurisdiction u/s 263 of the Act which stood quashed by the ITAT. In other words the amounts paid by the assessee to OM and WW were taxed in their hands as genuine transaction by the deptt. It is difficult to understand that when the revenue treated the transaction as genuine in the hands of two JV partners , how the same transaction can be non genuine and sham in the hands of the assessee. Moreover the chronology of events clearly shows that the application was made in the joint names of the assessee, OM and WW. The land was also allotted by MIDC on the said application made by the three joint venture partners . Thereafter MIDC on an application made by the JV partners approved the relinquishment of interest in the said land by two JB(sic. JV) partners OM and WW in favour of the assessee on payment of specified premium. It is relevant to note that records of MIDC proved that the assessee, OM and WW were the joint owners of the plot of land till the relinquishment of rights by OM and WW was approved by MIDC which showed the transaction being genuine and out of business consideration. A business decision was taken by the assessee to purchase the interest from two JV partners to which two partners also agreed to sell their interest to the assessee which is also a business decision taken by them in the best interest of the business. Moreover all the three parties are unrelated parties and not related to each other. Therefore the transaction cannot be said to be non genuine and sham. Further we failed to understand as to how a transaction which is assessed to tax in the hands of two JV partners by the revenue treating the same as genuine was treated as sham in the hands of assessee. In our considered view the assessee has entered into the transaction of purchasing the interest in the land from the said two parties and after purchase, became the exclusive owner of the said land and therefore the said expenditure is wholly and exclusively incurred for the purpose of business and should be allowed to the assessee. Beside, the involvement of multiple agencies including Govt authorities like MIDC and AOs of OM and WW, professional consultants and escrow agents specially when none of them were related to each other further lends credence to the contention of the ld AR. The mere irregularities in the documents as pointed by the ld DR cannot be the basis to draw conclusion as to genuineness of the transaction. So far as the reasonableness of the transaction is concerned, the valuation by the registered valuer and the DVO were largely same and cannot be ignored and lost sight of while deciding reasonableness of the transaction. After considering the rival contentions, records, written submissions and case laws filed by both the parties we are of the view that the order of PCIT upholding the order of AO treating the purchase of interest in the land from OM and WW as sham is incorrect and cannot be sustained. The decisions relied by the revenue are also distinguishable on facts and therefore not applicable. In view of the above discussions, we set aside the order of PCIT on this issue and accordingly appeal of the assessee is allowed. AO is directed accordingly.”

8. On appraisal of the above mentioned finding, we noticed that the assessee along with JV partners OM and WW got allotted the land measuring 50 acres upon the payment of Rs.50,58,62,500/- to the MIDC. Thereafter, the JV partners decided to surrender their interest in the land in favour of the assessee upon payment of Rs.100.80 crores. The necessary sanction was obtained from MIDC. The assessee accounted and provided for the transaction in its books of accounts as on 31.03.2006 by increasing the cost of land/inventories and correspondingly crediting the two JV partners with Rs.50.40 cores each and showing the remaining payable at the year end under the head of sundry creditors. The transaction was accepted by the AO at the time of scrutiny proceedings. In the meantime the assessment was completed for the A.Y. 2008-09 in December, 2010 in Jaipur approximately two years after the completion of assessment of the assessee. The assessment order was forwarded to the assessee by the Assessing Officer who reopened the case of the assessee. In the case of Om, the amount to the tune of Rs.50.40 crores was treated as revenue receipt and accordingly the taxed. In the case of WW the money received from the assessee was received as capital receipt and MAT was paid thereon. However, the CIT(A) invoked the revisionary jurisdiction u/s 263 of the Act which was quashed by the ITAT. In brief the amount was paid by the assessee to OM and WW were taxed in their hand as genuine transaction by the Department. When the transaction has already been treated as genuine then there is no ground to treat the same as sham transaction in further reassessment order. Moreover, the case of the assessee based on factual position which has duly been explained by the Hon’ble ITAT while passing the order in the assessee’s own case by virtue of order dated10.11.2017. In view of the said circumstances, we are of the view that the present issue has duly been covered by the assessee’s own case(supra). Accordingly, we decide this issue in favour of the assessee against the revenue. ISSUE NO 3:- 9. Under this issue the assessee has challenged the confirmation of the addition of interest upon the payment made to OM and WW. This issue has already been covered by the assessee’s own case dated 10.11.2017 (supra). The relevant finding is hereby reproduced below as under: - “6.1. Since we have decided the ground no 2 in favour of the assessee holding the transaction to be true on the ground that the same transaction which was treated as genuine in the hands of both the JB partners namely WW and OM, the same can not be held to be non genuine and sham in the hands of assessee. In view of the said findings any interest which the assessee has incurred on the money borrowed has to be allowed to the assessee and accordingly we direct the AO to delete the disallowance.”