ITO 6(2)(2), MUMBAI vs. DARSHAN REALTORS P. LTD, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 31/03/2016 of the Ld. First Appellate Authority, Mumbai and the assessee has preferred Cross objection. First, we shall take up the appeal of the Revenue, wherein, the first ground raised pertains to allowing deduction of Rs.24,21,00,000/-, being the amount of compensation paid to Akshata Mercantile Pvt. Ltd., ignoring the fact that the said payment is not substantiated either on facts or in law as a legitimate claim against its income from the SRA projects.

2.1. On the other hand, Shri Dharmesh Shah along with Shri Dhaval Shah, ld. counsel for the assessee, defended the impugned order by arguing that the Ld. Assessing Officer even raised objections to the payment and there was a joint venture agreement between the party and 4 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 the project is still in progress. Our attention was invited to clause-5(page-23) of the agreement between the parties and even the Ld. Assessing Officer has not doubted the payment.

Our attention was invited to pages -25, 29 and 30 of the paper book. Our attention was further invited to section 37 along with section 53 of the contract Act. Plea was also raised that section 54 is directly on the issue. A strong plea was raised that if the assessee would not have paid the compensation then the tenants would have created problem and it would have been a violation of the agreement. The Ld. counsel explained that M/s Akshata Mercantile Pvt. Ltd. performed its duty well in negotiating with the slum dwellers and the payment was made to them. Our attention was further invited to section 73 of the Act by explaining that even the Ld. Assessing Officer made enquiries, notices under section 133(6) were issued to M/s Akshata Mercantile Pvt. Ltd. for which our attention was invited to page-69 of the Act. It was pleaded that all evidences were filed by the assessee. Our attention was invited to page-85 (confirmation) to the effect that the Ld. Assessing Officer has 5 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 already made enquiries with Akshata Mercantile Pvt. Ltd.

Our attention was further invited to the remand report (pages 109, 110 of the paper book) and page-111 (rejoinder to the remand report). Reliance was placed upon the decision of the third member in the case of ACIT vs Anima Investment Ltd. [2000] (73 ITD 12(TM)(Del.) and Tatia Skyline & Health Farms Ltd. v. Assistant Commissioner of Income-tax (1999) 70 ITD 387 (Chennai).

2.2. We have considered the rival submissions and perused the material available on record. So far as, the ground raised by the Revenue allowing the deduction of Rs.24,21,00,000/-, being the amount of compensation paid to Akshata Mercantile Pvt. Ltd., is concerned, the facts, in brief, are that the assessee company was incorporated on 13/11/2009 with the objects of carrying on the business of real estate development and is wholly owned subsidiary of M/s Omkar Realtors and Developers Pvt. Ltd., declared loss of Rs.60,872/- in its return filed on 26/09/2012, which was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter the Act). The case of the assessee, later on, was 6 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 selected for scrutiny, under CASS, therefore, notice under section 143(2) dated 23/09/2013 and thereafter notice under section 142(1) along with questionnaire was issued and served upon the assessee. As per assessment order, the assessee attended the proceedings from time to time and furnished the details as is evident from para 1.1 (page-1) of the assessment order itself. The assessee entered into a joint venture agreement (hereinafter JVA) dated 06/06/2010 with M/s Akshata Mercantile Pvt. Ltd. (hereinafter in short Akshata) for carrying out an SRA project located at Shivsena Nagari, Mumbai. Before adverting further, it is our bounded duty to examine the aforesaid agreement dated 06/06/2010, therefore, the relevant portion of the aforesaid Joint Venture Agreement (pages 15 to 34 of the paper book) is reproduced hereunder which is required to be examined so that we can reach to a fair conclusion.

“5. Roles and Responsibilities of Akshata: Akshata shall perform the following roles and responsibilities, at its. own costs and expenses* a) . Akshata shall commence and complete the construction of the Free Sale. Buildings on the Free Sale Land, by utilisation of the Free Sale Component in accordance with. the sanctioned layout plans and the sanctioned

7 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 building plans by the SRA and all other statutory authorities and the Approvals and for such user as determined in the Business Plan in accordance with the time-lines as stated in the Work Schedule (forming part of the Business Plan) at the costs and expenses of Akshata. Akshatä shall comply with all the terms and conditions of the Approval at the costs and expenses of Akshata; b) Akshata shall commence and complete the construction of the Rehab Buildings on the Rehab Land, by utilisation of the Rehab Component in accordance with the sanctioned layout plans and the sanctioned building plans by the SRA and all other statutory authorities and the Approvals in accordance with the time-lines as stated in the Work Schedule (forming part of the Business Plan) at the costs and expenses of Akshata. Akshata shall comply with all the terms and conditions of the Approval at the costs and expenses of Akshata; c) Akshata shall commence and complete the construction and ' development of the Common Areas and Facilities and the infrastructure on the said Land including the parking, recreation garden, layout physical recreational garden, electrification, basic facilities and amenities as per the sanctioned plans and specifications and as shall be detailed in the Business Plan. The costs and expenses thereof shall be borne and paid by Akshata; d) Akshata shall commence and complete the construction and development of the religious structures existing on the said Land in the manner and on the location as per the settlement arrived by the Company. The costs and expenses, thereof shall be borne and .paid by Akshata; e) To the extent applicable on Akshata (with regard to the roles and responsibilities of the Akshata), to comply with the terms and conditions as contained in the Society Agreements and the agreements executed between the individual slum dwellers and the Company; f) To the extent applicable on Akshata (with regard to the roles and responsibilities of Akshata), to comply and fulfill and cause the compliance of all the conditions as mentioned in the said Letter of Intent (L01) and the Intimation of Approval (I0A) that may be issued by the SRA and all the conditions of the revised Letter of Intent and the revised 10A, if any,' required and/or applied for as may be issued by the SRA from time to time; g) The Akshata shall, deal with and settle all the eligible, non eligible slum dwellers and all the occupants and hutrnents on the said property and cause the vacation of the said property for the development of the Rehab Land and the Free Sale Land in the manner as stated in this Agreement. The costs and expenses pertaining to the same shall be borne by the Company; h) The Akshata shal cause the shifting of all the eligible slum dwellers to 8 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 the transit accommodation and shall also cause the relocation of all eligible slum dwellers to Rehab Buildings after completion thereof by Akshata. The Company shall pay and bear all the rent and deposits for the transit accommodation of the eligible slum dwellers; The Akshata shall deal with all slum dwellers, encroachers. occupants i) who are found to be Ineligible and cause the vacation thereof from the said Land and all and expenses in this regard shall be incurred by the Company; j) To do all the necessary acts, deeds, matters and things for administration, supervision and management of the Rehab Project and the Free Sale Project; To generally do any and all other acts, deeds, matters and things k) that may be required for carrying out the roles and responsibilities. of Akshata as envisaged herein at the costs and expenses of Akshata.

6. Marketing The decision with regard to the Marketing of the Premises in the Free Sale buildings including the determination of the price and consideration at which the same . should be undertaken and done and the payment terms shall be taken jointly by the Company and Akshata.

7. Business Plan

Akshata shall prepare a Business Plan (including the Work Schedule) and submit the same to the Company. Thereupon, the Company shall give its views and suggestions on the Business Plan. Akshata and the Company shall thereupon mutually finalise the Business Plan and any subsequent modification and amendment thereto shall be done jointly by the Company and Akshata. xxxxxxxxxxxxxxxxxxxxxx 12. Default (a) If any Party ("Defaulting Party") commits a breach of this Agreement or commits a default in performance of its roles, responsibilities and covenants under this Agreement, then in such a case without prejudice to the other rights and remedies, in law available to the other Party ("Non Defaulting Party"), the Non-Defaulting Party shall issue a notice (Remedy Notice") to the Defaulting Party and call upon the Defaulting Party to rectify and remedy the breach and/or perform its responsibilities and covenants within 30 days of the issuance of the .Remedy Notice failing' which the Non-Defaulting 'Party shall have a right and be entitled (but shall not be obligated) to rectify the default and/or and remedy the breach and/or perform the Roles and Responsibilities of the Defaulting Party as set out herein above, as the case may be, at the cost of the Defaulting Party ("Default Cost"); .

9 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 (b) The Defaulting Party shall forthwith bear and pay the Default Cost together with interest thereon at the rate of 21% per annum from the date when the Default Cost is borne and paid by the Non-Defaulting Party till the actual repayment thereof and till such time the Defaulting Party shall not be entitled to withdraw any amount with regard to its share from the Revenue Account. Further, in case of default in thepayment of Default Cost with the interest thereon the Non-. Defaulting Party shall be entitled to adjust the same. from the share of the Revenue of the Defaulting Party.

13. Notice It is agreed that any notice or other communication to be served Upon any Party to these presents shall always be in writing and shall be served either by (i) speed pbSt with acknowledgment due or (ii) by Courier at the respective addresses stated in the title or such other address as may be notified in writing by either. Party, and, within 7 days from the service thereof, shall be deemed to be received by the addressee.

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(b). It is mutually agreed that the. Courts in Mumbai Shall have exclusive jurisdiction in respect of any dispute or question relating to this Agreement. Miscellaneous 19. (a) The stamp duty and registration cost on this Agreement shall be borne and paid by Akshata. Each Party to this Agreement shall separately. bear and pay their respective Advocates and Solicitors fees; (b) If any provision in this Agreement becomes invalid or illegal or adjudged unenforceable, the provision shall be deemed to have been severed from this Agreement, as the case may be and the remaining provisions of the Agreement, so far as possible, be affected by the severance: (c) This Agreement shall not be altered, modified or supplemented except with the prior written approval of the Parties, and all such alterations, modifications and supplemental writings shall be effective, valid and binding only if the same are recorded in writing and executed by the Parties. This Agreement shall supersede all prior understandings, writings and agreements between the Parties; (d) It is agreed between the Parties that, each party shall be liable to bear and pay his/their income tax and all other taxes in respect of income received by each Party and 'neither Party shall bear and pay the income tax payable by the other Party; (e) Nothing contained In this Agreement shall be deemed to constitute a partnership or an association of persons between the Parties hereto. It is hereby 'agreed and declared that each Party has Undertaken obligations and has rights specified hereinabove,, on their own account and on principal to principal basis and not, on behalf of or on account of or as agent of any of them or of anyone else.”

2.3. If the aforesaid Joint Venture Agreement is analyzed at page-23 (clause-5) explains about the role and responsibilities of Akshata has been provided. As per clause- g (page-24 of the paper book), Akshata was to deal with/settle all eligible or non-eligible slum dwellers and all

11 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 the occupants and hutments were to be vacated at the cost of the assessee company. The relevant clause-g is reproduced hereunder:-

The Akshata shall, deal with and settle all the eligible, non f) eligible slum dwellers and all the occupants and hutrnents on the said property and cause the vacation of the said property for the development of the Rehab Land and the Free Sale Land in the manner as stated in this Agreement. The costs and expenses pertaining to the same shall be borne by the Company; 2.4. At page-25 of the paper book (clause-7), it has been agreed that Akshata shall prepare a business plan (including the work schedule) and submit the same to the assessee company. At page-28 (clause-12), the default has been incorporated with respect to breach of this agreement or default in performance of roles and responsibilities and covenants under this agreement. In case of default (clause- b), the defaulting party shall bear the default cost along with interest thereon at the rate of 21% per annum (page-28 of the paper book). Clause-15 (page-29) of the JVC speaks about arbitration and jurisdiction and at clause-19 (page 30 of the paper book), it has been agreed that the stamp duty and the registration cost of the agreement shall be borne and paid by Akshata. Thus, the totality of facts, clearly

12 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 indicates the terms and conditions agreed upon in the joint venture agreement. At page-69 of the paper book, one reply dated 16/10/2014 from Akshata has been provided, which is in response to notice under section 133(6) in the case of the assessee with respect to nature and transaction. At page-109 and 110 of the paper book, the submissions from the Assessing Officer (addressed to the Ld. Commissioner of Income Tax (Appeal)) has been annexed, which is also reproduced hereunder:-

GOVERNMENT OF INDIA Office of the INCOME TAX OFFICER-6(2)(2) ROOM NO.510, 5TH Floor, Aayakar Bhavan, M.K. Road, Mumbai-400020 Tel:22032077, 22039131 Ext.2510 No.ITO-6(2)(2)/Remand/2015-16 Date:29.02.2016 To,

The Commissioner of Income Tax (Appeals) - 12, Mumbai Madam, {Through proper channel} Sub:- Forwarding of submission in the case of M/s Darshan Realtors Put. Ltd (PAN AAACC4204D) for Asst Year 2012-13 - reg. Ref:- Letter No CIT(A) 12/Remand report/2015-16 dated 16.10.2015 ------------------------------------------------------------------------------------------------------------------------ -----

Kindly refer to the above, Vide above referred letter a report has been sought by 24.11.2015. The report

13 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 couldn't be sent on time. The delay in submitting the report is extremely regretted. The assessee filed its return of income, for A.Y.2012-13 on 26/09/2012 declaring loss of Rs.60,872/-.. The same was assessed u/s. 143(3). In the assessment order passed u/s 143(3) of Income Tax Act on 16.03.2015, addition was made to the returned income on account of disallowance of expenses claimed of Rs.24,21,00,000/- for compensation to M/s Akshata mercantile P Ltd and disallowance of Rs.6,71,20,591/- for other expenses. The computation is reproduced as under: (A) Income from Business: (1) On SRA project as per assessee (-) R5. 60,872 Add: Expenses Claimed by the assessee since disallowed (a) Compensation to Akshata 24,21,00,000 (b) Other expenses 6,71,20,591 Rs.30,92,20,591 ---------------------------------- Rs.30,91,59,719 Less: Interest income considered under “other sources” Rs. 7,11,248 Rs.30,84,48,471 Business income assessed as per this order (B) Income from other sources Rs. 7,11,248 -------------------------------- -- Total income assessed as per this order Rs.30,91,59,719 Rounded off to Rs.30,91,59,720

Thus, the total assessed income of the assessee was determined at Rs 30,91,59,720/- the assessee filed an appeal against the assessment order on 30.03.2015.

Vide above referred letter the assessee has relied on some documents. The documents relied on by the assessee, don't have any bearing on the facts of the case. As per rule 46A of Income Tax Rules, the assessee shall not be entitled to produce before the CIT(A) any evidence, whether oral or documentary, other than the 'evidence produced by him during the course of assessment proceedings, except in the following cases: a) where the assessing officer has refused to admit evidence which ought to have been admitted b) where the assessee was prevented by sufficient cause from producing the evidence which he was called upon to produce by the AO c) where the assessing officer has made the order appealed against without giving sufficient opportunity to the assessee

In this case, none of the above conditions are satisfied. There is no reasonable cause by virtue of which, the assessee was prevented from submitting any documents. The assessee was given sufficient opportunity to produce the evidence, If any. The AO has not refused to admit any evidence, which ought to have been admitted.

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It is relevant to mention here that the documents relied upon by the assessee company doesn't have any bearing on the case in view of the fact that M/s Omkar Realtors Pvt. Ltd is not the party to the MOU dt.06/06/2010 signed between M/s Akshata Mercantile Pvt. Ltd and the assessee company. The opinion of the advocate Is not binding on the revenue authorities. Accordingly, the additional grounds filed by the assessee should not be admitted. The appeal may be accordingly decided on the basis of above submissions and merits of the case.”

2.5. The rejoinder to the above is available at pages 111 to 113 of the paper book, which was also considered by the Ld. Commissioner of Income Tax (Appeal). It is also noted that the submissions of the assessee vide communication dated 11/09/2015 are also provided in the paper book explaining the reasons of the payment (addressed to the Ld. Commissioner of Income Tax (Appeal).

It is further noted from the paper book that all the documents running into 138 pages were made available before the ld. Assessing Officer and also before the Ld. Commissioner of Income Tax (Appeal) as indicated in the certificate below the index to the paper book. Thus, the contention of the Ld. CIT-DR that proper investigation was not done by the Assessing Officer/Ld. Commissioner of Income Tax (Appeal) is factually incorrect. So a particular

15 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 decision is concerned that depends upon the subjective approach of the concerned officer. However, we find that the Ld. Assessing Officer as well as the Ld. Commissioner of Income Tax (Appeal) has taken one of the possible views. So far as the contention of the Ld. CIT-DR that the Ld. Commissioner of Income Tax (Appeal) was expected to give direction to the Ld. Assessing Officer to examine the issue again is concerned, the Ld. Commissioner of Income Tax (Appeal) is empowered to decide the appeal on merit and if so desired after getting the remand report or submission from the assessee, which has been done, therefore, there is no necessity to send it back.

3. If this issue is analyzed in the light of the Contract Act, 1872, chapter-iv speaks about performance of contracts.

Section 37 provides/obligation of the parties to the contract, which is reproduced hereunder:-

“37. The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract. A promises to deliver goods to B on a certain day on payment of Rs. (a) 1,000. A dies before that day. A's representatives are bound to deliver

16 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 the goods to B, and B is bound to pay Rs. 1,000 to A's representatives. (b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A's representatives or by B.” 3.1. If the aforesaid section is analyzed by keeping it in juxtaposition with the JVA, it is the duty of the Court to interpret the document of contract as was understood between the parties, strictly, without altering the nature of the contract. A different interpretation cannot be given dehors the contract as was held by the Hon'ble Apex Court in Polymat India Pvt. Ltd. vs National Insurance Company Ltd. (2005) 9SSC 174 (Supreme Court) and no aid outside the terms of the contract should be sought unless the meaning is ambiguous on a strict reading of the said terms as was held in United India Insurance Company Ltd. vs Harchand Rai Chandan Lal, (2004) 8 SCC 644. So far as the effect of refusal to accept the offer of performance is concerned, it has been provided in section 38 of the Act as

per which the offer has to be fulfilled, which should be unconditional. The liability of parties preventing even on which contract is to take effect has been provided in section 53 of the Contract Act and as per the section 54, effect of

17 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 default as to that promise has been provided. The consequences of breach of contract has been provided in Chapter-VI and section 73 of the contract Act speaks about compensation of loss and damage caused by breach of contract has been provided. The provision is reproduced hereunder:-

“73. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract : When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation : In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account. (a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered. (b) A hires B's ship to go to Bombay, and there takes on board on the first of January, a cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. B's ship does not go to Bombay, but A has opportunities for procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.

18 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 (c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it. (d) A contracts to buy B's ship for 60,000 rupees, but breaks the promise. A must pay to B, by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time of the breach of promise. (e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place, starting on a specified day. The boat, owing to some unavoidable cause, does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived. (f) A contracts to repair B's house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conforming to the contract. (g) A contracts to let his ship to B for a year, from first of January, for a certain price. Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January. (h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it. (i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A's mill, informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.

19 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 (j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B. (k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece of machinery at the time specified, and, in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a hired person at the time of his contract with A (but which had not been then communicated to A), and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation, the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation. (l) A, a builder, contracts to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January, it falls down and has to be rebuilt by B, who in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding of the house, for the rent lost, and for the compensation made to C. (m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A. (n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day; B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the day of payment. (o) A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price. B, afterwards, before the first of January, contracts to sell the saltpetre to C at a price higher than the market price of the first of January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the 20 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 sale to C, is to be taken into account. (p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B's mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by closing of the mill. (p) A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making preparation for the manufacture. (r) A, a ship owner, contracts with B to convey him from Calcutta to Sydney in A's ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being in consequence, detained in Calcutta for some time, and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship over that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late. Thus, from the angle of Contract Act also, we find no infirmity in the order of the Ld. Commissioner of Income Tax (Appeal). So far as, the contention of the Ld. CIT-DR that a reasoned order has not been passed by the First Appellate Authority, is concerned, it depends upon individual approach and way of dealing with the matter, therefore, we find no infirmity in the order.

21 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 4. During hearing, the Ld. CIT-DR also relied upon the decision from Hon'ble Delhi High Court in the case of CIT vs M/s Jansampark Advertising & Marketing Pvt. Ltd. (ITA No.525 of 2014) order dated 11/03/2015. In all fairness, we are reproducing hereunder the relevant portion of the aforesaid order:-

1. This appeal under Section 260-A of Income Tax Act, 1961 assails the order dated 14.06.2013 passed by Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT”) in appeal No. 4839/Del/2009 respecting the respondent (“the assessee”) for the assessment year (AY) 2004-05. The following substantial question of law was framed by order dated 25.11.2014:- ― 2.1 Whether in the facts and circumstances of the case ld. ITAT was correct in allowing the appeal of the assessee in regard to addition of ₹71,00,000/- on account of unexplained credit u/s 68 of the Income Tax Act. 2.2 Whether in the facts and circumstances of the case ld. ITAT was correct in allowing the appeal of the assessee in regard to addition of ₹1,42,000/- on account of commission paid on entry taken from entry provider.

2. The assessee had filed its return of income for AY 2004-05 on 01.11.2004 declaring income of ₹3,180/-. The said original return was accepted. It is stated that some time in 2007 the Assessing Officer (AO) was in receipt of information from DIT (Investigation), New Delhi that the assessee had been in receipt of accommodation entries from the entry providers. It is the averment of the Revenue that – ― during the course of the enquiries conducted by the investigation wing of the department it was concluded that most of the entry operators are charging commission @ 2% for giving this accommodation approach to another person and hand over the cash plus commission and take cheques/DDs/Pos. The cash is deposited by the entry operator in a bank account either in his own name or in the 22 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 name of the relative/friends or other person hired by him for the purpose of opening bank account. The other person (in whose name the account is opened) only signs the blank cheque book and hands over the same to main entry operators. The entry operator then issues cheques/DDs/Pos in the name of the beneficiary from the same account in which the funds are transferred through clearing in two or more stages. The beneficiary in turn deposits these instruments in his bank accounts and the money comes to his regular books of accounts in the forms of gift, share application money/share capital/unsecured loans etc. through banking channel. Since the funds have come through banking channel in the books of beneficiary these apparently look genuine.

24 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 (i) The allegation of the assessing officer that some of the summons came back unserved, the assessee was never confronted with any such correspondence. (ii) Assessee had discharged the preliminary burden in terms of Sec. 68 for the existence of the creditors – The parties from whom it has received share application money by filing copy of application for subscription of shares, confirmations, copy of Company Master Data from the office of ROC. Acknowledgment of Filing of Income Tax Return with Permanent Account Number etc. (iii) The credit worthiness of the parties to pay such Share Application Money to the Appellant Company has been established on the basis of copy of Annual Accounts of the subscriber Companies, copy of Bank Statements etc., filed during assessment proceedings. (iv) The genuineness of the transaction i.e. the nature of receipts by the Assessee Company by way of Share Application Money is established by the fact that the amounts were received through banking channels, shares were allotted against the amounts received, vide return of allotment dated 29.06.2004, filed with ROC.

(i) Confirmations of the parties; (ii) Copies of income-tax returns along with supporting statements; (iii) Copies of the bank statements; (iv) Copies of the Board resolution of the respective share holding companies for subscribing the share applications; (v) Copies of allotment letters; (vi) Copies of the registration certificates of the share holder companies from Registrar of Companies disclosing existence of the companies as per master data from the 25 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 office of ROC along with the subscription of the capital details, number and dates of payments.

7.1. No adverse material was confronted to the assessee by the assessing officer. Thus, the addition cannot be sustained on the ground of canon of natural justice i.e. audi alteram partem. The assessing officer set back on his query and merely asking some non-specific sketchy questions at the fag end of the assessment order, it cannot be held that proper inquiries were instituted. Thus, it is case which suffers from lack of enquiries as referred to by Hon'ble Delhi High Court in the case of Gangeshwari Metal Pvt. Ltd. which we have to respectfully follow.

26 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 14. In accepting the contentions of the assessee, the ITAT referred, inter alia, to the decision of this court in CIT v. Gangeshwari Metal Pvt. Ltd. (ITA 597/2012 decided on 21.01.2013) quoting the following observations from M/s Nova Promoters and Finlease (P) Ltd.(supra) and distinguishing it on facts:- "The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and share holders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self- confessed "accommodation entry providers" whose business it is to help assessees bring into their books of account their unaccounted monies through the medium or share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan -a smokescreen – conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec.68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth

27 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 and justice to express a view to the contrary.‖ [emphasis supplied]

6.1. A perusal of the order-sheet entries will clearly reveal that on 17-12-2008 the assessee was asked to produce the parties for physical verification. It is submitted that in incometax proceedings it is not possible for the assessee to enforce attendance of any person to physically bring him before any income-tax authority. The assessee has neither the powers nor the ability to convince the parties to come with it to attend before the assessing officer. On 22-12- 2008 assessee was only intimated that some 131 summons were issued 5 days prior to the framing of the assessment. It was intimated by assessing officer that summons U/S 131 have been issued to "some of the parties" and some of the summons have been received back, and for others none of them appeared. The assessee was never made aware which were the some parties to whom summons were issued; which were the some parties whose summons came back and who were some parties for which non-appeared. On 23-12-2008 assessee in all humbleness expressed his inability to produce the parties in short period. The additions were made without conducting any inquiry and assessing officer sitting in his chamber held that assessee did not discharge its burden. Thus, the entire edifies of the assessing officer drawing the adverse inference is on wrong premise i.e. without conducting any inquiry, verification of income-tax record and without any confrontation to the assessee. In the absence of any exercise what so ever by assessing officer, the assessee's primary burden cannot be held to have been rebutted by assessing officer.‖ [emphasis supplied]

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless—

29 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” [emphasis supplied]

31 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 of the share applicants containing the above information were filed. The Assessing Officer did not carry out any inquiry into the income tax records of the persons who had given their file numbers in order to ascertain whether they were existent or not. He neither controverted nor disapproved the material filed by the assessee. Further, the assessee had specifically invited the Assessing Officer to carry out an enquiry and examine the assessment records of the share applicants whose income tax file numbers were given. Though the Assessing Officer had sufficient time to carry out the examination, he did not do so, but put forth an excuse that the assessee was taking several adjournments. This court observed that it is for the Assessing Officer to manage his schedule and he should have ensured that because of the adjournments he did not run out of time for discharging the duties cast on him by law. It was held that when details were furnished by the assessee, the burden shifted to the Assessing Officer to investigate into the creditworthiness of the share applicants which he was unable to discharge...‖ [emphasis supplied]

41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so- called ―share subscription monies‖ to the assessee. There was thus specific involvement of the assesseecompany in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of CIT v Oasis Hospitalities P. Ltd. (supra).‖ [emphasis supplied]

33 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 however, conceded that the documents, thus, submitted would not cover each of the twelve entities. He submitted that sufficient opportunity was not available to procure similar documents from the other share applicants or to produce them before the AO. In this context, he pointed out that the communication for physical production of the parties was received on 17.12.2008 whereas the assessment was finalized on 26.12.2008. It was further argued that it had been submitted before the CIT (Appeals) that the assessment order was barred by limitation and that the conclusions reached by the AO were without basis. It was also argued that the assessment order is vague, in that, it is not clear as to the summons under Section 131 of Income Tax Act to which of the twelve entities had returned undelivered with postal remarks indicative of the same having been evaded.

34 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 unaccounted, the initial burden is on the recipient of the money. For this purpose, the assessee in receipt of money (by whatever name called, including in the form of share application money credited in its book by a company) must collect and have in its possession some proof to satisfy, when the need arises, the assessing authorities not only as to the identity of the party making the payment but also its creditworthiness as indeed the genuineness of the transaction.

35. Assessment proceedings under the Income Tax Act are not a game of hide and seek. The inquiry in the wake of a notice under Section 148 is not an empty formality. It must be effective and with a sense of purpose. There is an elaborate procedure set out which requires scrupulous adherence and followed up on. In the hierarchy of the authorities, the AO is placed at the bottom rung. The two layers of appeals, before the matter engages the appellate jurisdiction of this court, are authorities vested with the jurisdiction, power and obligation to reach appropriate findings on facts. Noticeably, it is only the appeal to the High Court, under Section 260-A, which is restricted to consideration of “substantial question of law”, if any arising. As would be seen from the discussion that follows, the obligation to make proper inquiry and reach finding on facts does not end with the AO. This obligation moves upwards to CIT (Appeals), and also ITAT, should it come to their notice that there has been default in such respect on the part of the AO. In such event, it is they who are duty bound to either themselves properly inquire or cause such inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse.

35 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 36. The authority to bring to tax unaccounted money by exercising the power given to the AO under Section 68 is of great importance. It is expected that the AO would resort to this provision with all requisite circumspection. Since the provision is generally invoked, as has been done in the case at hand, by recourse to the procedure of notice under Section 148 upon satisfaction under Section 147 that the income (purportedly represented by the unexplained sums found credited in the books of accounts), within the mischief of Section 68, it is inherent that the explanation of the assessee respecting such credit entries would be called for only with circumspection and solely upon some concrete material coming up to support the tentative impression about it being suspect.

37. Thus, when the AO sets about seeking explanation for the unaccounted credit entries in the books of accounts of the assessee in terms of Section 68, it is legitimately expected that the exercise would be taken to the logical end, in all fairness taking into account the material submitted by the assessee in support of his assertion that the person making the payment is real, and not non-existent, and that such other person was actually the source of the money forming the subject matter of the transaction as indeed that the transaction is real and genuine, same as it is represented to be. Having embarked upon such exercise, the AO is not expected to short-shrift the inquiry or ignore the material submitted by the assessee.

The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals).‖

36 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017

37 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 on the basis of returning undelivered of the summonses under Section 131. Conversely, with doubts as to the genuineness of some of the parties persisting on account of non-delivery of the processes, the initial burden on the assessee to adduce proof of identity cannot be treated as discharged.

38 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017

40 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 conclusion. The terms of the agreement has been duly considered by the Ld. Commissioner of Income Tax (Appeal) after getting a report from the Ld. Assessing Officer as is evident from the impugned order. The issue has also been analyzed by the Ld. Commissioner of Income Tax (Appeal) with respect to principle of commercial expediency by placing reliance upon various judicial pronouncement, which are not being repeated. So far as the admission of additional evidence by the Ld. Commissioner of Income Tax (Appeal) is concerned, as canvassed by Ld. CIT-DR, we find that this additional evidence was forwarded to the Ld Assessing Officer for his comments and the reply of the Ld. Assessing Officer dated 29/02/2016has been considered along with the rejoinder of the assessee to the remand report. The crux of the argument by the Ld. CIT-DR and the objection of the Ld. Assessing Officer to the effect that there was no need to give compensation to Akshata is concerned, this issue has been dealt with at page-29 onwards of the impugned order, wherein, it has been observed that the assessee has duly rebutted the observation made in the 41 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 assessment order through its submissions. No evidence has been brought on record at any stage to substantiate that it was a sham transaction or it was a kind of accommodation entry. The addition has been made merely on the basis of suspicion. We are of the view that suspicion cannot take the shape of evidence however strong it may be. Thus, in the light of the foregoing discussion, we find no infirmity in the impugned order on the issue in hand, resultantly; this ground of the Revenue is dismissed.

The Ld. CIT-DR advanced arguments which are identical to the ground raised. On the other hand, the ld counsel for the assessee explained that it is a very common practice in a city like Mumbai, where alternative accommodation has to be provided to the tenants of the SRA projects and thus such expenses are allowable for commercial expediency.

42 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 5.1. We have considered the rival submissions and perused the material available on record. We find that the Ld. Commissioner of Income Tax (Appeal) has dealt with the issue at page-30 (para-12) of the impugned order. The claim of the assessee is that the expenses were incurred before and after agreement dated 31/03/2012 and the same were incurred by Omkar. As per the JVA with M/s Akshata, the assessee has 50% selling right and subsequently that agreement was cancelled with M/s Akshata. It seems that some confusion has been created in the impugned order, wherein, it was observed that ….

“the reason behind such transaction is based known to the appellant only. The Assessing Officer has not made any comment as to whether the expenses have not been incurred or whether, it is bogus expenses. Hence, it is held that the expenses are genuine business expenses but the transaction is an arranged transaction between related concerned parties…………….., accordingly, the Assessing Officer is directed to treat business income at nil and taxed the amount of Rs.7,11,248/- as income from other sources.” If the totality of facts are analyzed, the Ld.

Commissioner of Income Tax (Appeal) at page-30, has herself observed that the assessee cancelled the agreement

43 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 with Akshata and the assessee incurred expenses towards alternate accommodation to tenants of SRA projects and other expenses. The confusion was further created in the impugned order by observing that there is lack of commercial decision because the assessee is the subsidiary of M/s Omkar, therefore, it’s a colorable device. We are of the view that a clear cut contradictory observation has been made by the Ld. Commissioner of Income Tax (Appeal). So far as the claim of expenses is concerned, it is upto the businessman and the Assessing Officer is not expected to get into the shoes of a businessman. The Ld. Commissioner of Income Tax (Appeal) at one hand (page-31) held that the expenses are genuine business expenses but the transaction is an arranged transaction between the related parties and further observed that Akshata is not a related party. Both things simultaneously cannot happen. When the Ld. Commissioner of Income Tax (Appeal) holds that the expenses are genuine business expenses then how it can be an arranged transaction. If the transaction is arranged then it cannot be held to be a genuine business expenses. What

44 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 it may be, we are expected to examine the legitimacy of such expenses. The payment is not in dispute and if these are genuine business expenses then necessarily held to be allowable under section 37 of the Act. Before adverting further, we are reproducing hereunder the provision of section 37 of the Act:-

37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. (2) [***] (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. 5.2. If the aforesaid section is analyzed, it speaks about ‘any expenditure’ (not being expenditure in the section 30 to 36) and not being in 45 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 the nature of capital expenditure or personal expenses of the assessee but laid out or expanded wholly and exclusively for the purpose of business of the assessee. It’s our bounded duty to analyze the claim of deduction u/s 37(1) of the Act.

5.3. Now, question arises, whether the expenses incurred towards alternate accommodation to tenants of SRA projects/other expenses are allowable or not. The obvious reply is “yes”.

5.4. The Hon'ble Court in CIT vs New Savan Sugar and Good Refining Co. Ltd. (1990) 185 ITR 564, 571 (Cal.) held that it is for the Tribunal to decide whether the expenditure is wholly incurred for the purpose of keeping the assessee company in operation and earning income in as much as the concept “wholly” pertains to quantum of the money expended. The Hon'ble Court further observed even if a particular expenditure is un-remunerative, such expenditure is nonetheless a proper deduction, if such 46 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 expenditure is made wholly and exclusively for the purposes of earning such income.

5.5. If the issue is analyzed in the light of section 37(1) of the Act, broadly speaking, we have notice in many cases that the developers are expanding/incurring expenses for providing alternate accommodation to tenants of SRA projects, otherwise, the tenants will not vacate the premises and that area cannot be developed unless and until such tenants are provided alternate accommodation. This proposition is supported by Hon'ble Apex Court in Dalmia Jain & Co. Ltd. vs CIT (1971) 81 ITR 754 (SC) and Meenakshi Mills Ltd. vs CIT (1967) 63 ITR 207 (SC). To be more precise, the type of litigation, object or purpose of the litigation has to be ascertained from the facts of each case. If the object or purpose is with respect to business purposes, it has to be an allowable deduction. The ratio laid down in following cases supports our view:- a) CIT v. Bengal Assam Investors Ltd., (1969) 72 ITR 319, 325 (Cal);

47 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 b) CIT v. Life Insurance Corporation of India, (1966) 62 ITR 827 (Cal); c) Premier Construction Co. Ltd. v. CIT, (1966) 62 ITR 176 (Bom); d) Liberty Cinema v. CIT, (1964) 52 ITR 153, 167 (Cal); Transport Co. Pr. Ltd. v. CIT, (1962) 46 ITR e) 1009, 1016 (Mad); Transport Co. Ltd. v. CIT, (1957) 31 ITR 259, 266-7 (Mad); f) G. Veerappa Pillai v. CIT, (1955) 28 ITR 636 (Mad); g) CIT v. Raman & Raman Ltd.,(1951) 19 ITR 558, 569-70 (Mad). Also see, Lachminarayan Modi v. CIT, (1955) 28 ITR 322 (Orissa); h) J. B. Advani & Co. Ltd. v. CIT, (1950) 18 ITR 557 (Bom); i) Mahabir Prasad & Sons v. CIT, (1945) 13 ITR 340 (Lah); j) Central India Spinning, Weaving & Manufacturing Co. Ltd. v. CIT, (1943) 11 ITR 266 (Nag); k) CIT v. Maharajadhiraja Sir Kameshwar Singh (1942) 10 ITR 214 (PC) l) Southern V. Borax consolidated Ltd. (1942) 10 ITR (Sup) 1 (KB) m) Associated Portland Cement Manufacturers Ltd. v. Kerr, (1946) 27 Tax Cas 103, 118 (CA) n) Ebrahim Aboobaker v CIT (1971) 81 ITR 664 (Bom.) 5.6. As per the provision of section 37(1) of the Act, all that the court has to see is whether the expenses were incurred by the assessee in his character as a trader/developer, in other words, whether the transaction arose out of and was incidential to assessee's business.

48 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 Further, it is to be seen whether the expenditure was bonafidely incurred wholly and exclusively for the purpose of the business [see, CIT v. Birla Cotton Spng. & Wvg. Mills Ltd., (1971) 82 ITR 166 (SC); CIT v. Dhanrajgirji Raja Narsingirji, (1973) 91 ITR 544, 549 (SC)].

5.7. So far as, issue of quantum of the expenditure to be incurred is concerned, we are of the view, it is for the assessee to decide how best to protect his own interest. It is not open to the department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. The ratio laid down in CIT v.

Dhanrajgirji Raja Narsingirji, (1973) 91 ITR 544 (SC) supports our view. In that case His Lordship observed:

“It is true that in some of the cases this court has held that an expenditure incurred by an accused assessee to defend himself against a criminal charge did not fall within the scope of section 1O(2)(xv)*. Those decisions were rendered on the facts of those cases. That is not the position in this case."

Thus, the Revenue cannot sit in the armchair of the businessmen to decide what expenses are to be incurred for 49 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 its business so long these expenses are governed by principles of commercial expediency. Reference is drawn to the decision of Hon'ble Delhi High Court in the case of CIT v.

Dalmia Cement(Bharat) Limited (2002) 254 ITR 377(Del) which proposition is approved by Hon'ble Supreme Court in S.A.Builders Limited v. CIT(A) (2007) 288 ITR 1(Supreme Court). The Hon'ble Supreme Court in the case of S.A.Builders((supra)) observed as under:-

“34. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

Ahmedabad Controlled Iron & Steel Assn. Pr. Ltd., (1975) 99 ITR 567 (Guj), where expenses incurred by company in defending its managing director were held allowable. In order to so claim such expenditure the assessee has not only to prove that the expenditure was incidental to the business but also to show that the expenditure was laid out

51 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 or expended wholly and exclusively for the purpose of the business [Indermani Jatia v. CIT, (1951) 19 ITR 342 (All) on appeal, see, (1959) 35 ITR 298 (SC)]. To sum up the issue we find that Hon'ble Justice P.D. Desai, in Smt. Virmati Ramkrishna vs CIT (1981) 131 ITR 659, 672-73(Guj.), has analyzed the statutory language and laid down various principles, in various decided cases and made following propositions.

(i) in order to decide whether an expenditure is a permissible deduction under section 57(iii), the nature of the expenditure must be examined; (ii) the expenditure must not be in the nature of capital expenditure or personal expenses of the assessee; (iii) the expenditure must have been laid out or expended wholly and exclusively for the purpose of making or earning "Income from other sources"; (iv) the purpose of making or earning such income must be the sole purpose for which the expenditure must have been incurred, that is to say, the expenditure should not have been incurred for such purpose as also for another purpose or for a mixed purpose; v) the distinction between purpose and motive must always be borne in mind in this connection, for, what is relevant is the manifest and immediate purpose and not the motive or personal considerations

52 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 weighing in the mind of the assessee in incurring the expenditure; (vi) if the assessee has no option except to incur the expenditure in order to make the earning of the income possible, such as when he has to incur legal expense for preserving and maintaining the source of income, then, undoubtedly, such expenditure would be an allowable deduction; however, where the assessee has an option and the option which he exercises has no connection with the making or earning of the income and the option depends upon personal considerations or motives of the assessee, the expenditure incurred in consequence of the exercise of such option cannot be treated as an allowable deduction; (vii) it is not necessary, however, that the expenditure incurred must have been obligatory; it is enough to show that the money was expended not of necessity and with a view to an immediate benefit to the assessee but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the making or earning of the income; (viii) if, therefore, it is found on application of the principles of ordinary commercial trading that there is some connection, direct or indirect, but not remote, between the expenditure incurred and the income earned, the expenditure must be treated as an allowable deduction; (ix) it would not, however, suffice to establish merely that the expenditure was incurred in order indirectly to facilitate the carrying on of the activity which is the source of the income; the nexus must necessarily be 53 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 between the expenditure incurred and the income earned; (x) it is not necessary to show that the expenditure was a profitable one or that in fact income was earned; (xi) the test is not whether the assessee benefited thereby or whether it was a prudent expenditure which resulted in ultimate gain to the assessee but whether it was incurred legitimately and bona fide for making or earning the income; (xii) the question whether the expenditure was laid out or expended for making or earning the income must be decided on the facts of each case, the final conclusion being one of law'. 5.9. Likewise, Hon'ble Apex Court in Sree Meenakshi Mills Ltd. v. CIT, (1967) 63 ITR 207 (SC), where expenses were incurred in filing a suit for obtaining an order restraining seizure of goods delivered in contravention of the control order were held allowable deduction. It follows from this decision that:

(i) litigation expenses to secure an order from the court for enabling an assessee to carry on its business without interference is an allowable deduction;

(ii) expenditure incurred to resist, in a civil proceeding, the enforcement of a measure, legislative or executive, which imposes restrictions on the carriage of a business or to obtain a 54 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 declaration that the measure was invalid, would, if other conditions are satisfied, be admissible as deduction; and (iii) the deductibility of expenditure incurred in prosecuting a civil proceeding depends upon the nature and purpose of the civil proceeding in relation to assessee's business and cannot be affected by the final outcome of that business.

5.10. In the case of CIT vs Gannon Dunkarlay and Co.

Pvt. Ltd. (2000) 243 ITR 646 (Mad.), CIT vs Administrator General Of Madras (1998) 234 ITR 351 (Mad.), CIT vs Patiala Flour Mills Co. Ltd. (1989) 180 ITR 75 (P & H), Hindustan Milk Food Manufacturing Ltd. 179 ITR 302 (P & H), Palani Sir Murgun Textiles Ltd. vs ACIT (2002) 254 ITR 333 (Mad.) decided the issue in favour of the assessee. In the light of the foregoing discussion, ratio laid down by various Hon'ble High Courts/Hon'ble Apex Court and the facts available on record, we are of the considered opinion that the expenses incurred towards providing alternate accommodation to tenants of SRA projects/other expenses, is an allowable deduction. Thus, this ground of the Revenue is dismissed.

We order accordingly.

55 M/s Darshan Realtors Pvt. Ltd. C. O. No.299/Mum/2017 6. Now, we shall take up the cross objection of the assessee in C.O. No.299/Mum/2017. We have elaborately discussed and analysed the entire spectrum of the transaction entered into by the assessee and given an elaborate findings with detailed reasoning while deciding the aforesaid appeal of the Revenue. Hence, CO of the assessee is adjudicated in lines with our above decision in Revenue’s appeal and accordingly assessee’s CO is disposed off. Thus, in nut-shell the CO of the assessee is allowed. We order accordingly.

Finally, the appeal of the Revenue is dismissed and cross objection of the assessee are automatically disposed of in terms indicated hereinabove.

This Order was pronounced in the open court on 26/09/2018.