ASST CIT CIR 25(3), MUMBAI vs. NAILESH S. MEHTA, MUMBAI

The appeal of the revenue is directed against the order dated 05- 04-2017 passed by Ld CIT(A)-37, Mumbai and it relates to the assessment year 2012-13. Following issues are urged in this appeal:- (a) Whether the Ld CIT(A) was right in holding that the compensation received on cancellation of Flats booked by the assessee is genuine business income and not cash credit representing accommodation entry, which is assessable as income of the assessee under the head Income from other sources. (b) Whether the Ld CIT(A) was right in deleting the disallowance made by the AO u/s 14A of the Act read with Rule 8D of I T Rules. (c) Whether the decision rendered by Ld CIT(A) in respect of profits generated in commodity derivatives and loss incurred in trading in futures and option is correct.

The first issue relates to the compensation amount of Rs.10.01 crores received by the assessee. It is stated that the assessee had entered into an agreement with M/s Ellora Build Spaces P Ltd on 01- 04-2011 for purchase of flats for Rs.25 crores in the buildings proposed to be constructed under the name Nakshatra Phase I and Nakshatra Phase II. The assessee had given loan of Rs.2.40 crores to the above said builder and the said loan was converted into booking advance for purchase of flats. Later on, the booking of flats was cancelled by entering into a cancellation deed dated 14.02.2012 and the assessee was given a compensation of Rs.10,01,64,000/-. The assessee declared the same as his business income. The AO, however, noticed that the assessee has neither paid Service tax nor VAT on the booking of flats under construction in order to prove the genuineness of transaction. Accordingly, the AO took the view that the assessee and builder have adopted deceptive means for mutual benefit in order to reduce the tax liability. Accordingly, the AO held that the assessee has availed accommodation entry of Rs.10,01,64,000/- and the same is assessable as income of the assessee under the head “Income from other sources”. 3.1 The Ld D.R submitted that the assessee did not furnish any document to prove the genuineness of transactions of booking of flats and cancellation of the same before the AO. Further, the assessee has also failed to prove that he is engaged in the real estate business. He submitted that the assessee had huge brought forward losses and hence the assessee has generated the impugned business income by way of accommodation entry by arranging make belief transactions. The Ld D.R further submitted that the Ld CIT(A) has granted relief to 3 Nailesh S. Mehta ITA. No.4847/Mum./2017 the assessee by considering the documents which were not produced before the AO and thus violated the provisions of Rule 46A of Income tax Rules. 3.2 The Ld A.R, on the contrary, submitted that the assessee is a partner in certain partnership firms, which are engaged in the real estate business. He submitted that the assessee has booked flats with the intention of selling the same. He further submitted that the flats were booked at the then prevailing prices and the compensation was computed at the time of cancellation on the basis of price prevailing at that point of time. Accordingly, he submitted that the Ld CIT(A) has rightly held that the compensation amount received by the assessee is the business income of the assessee. 3.3 We heard the parties on this issue and perused the record. From the assessment order, it is not clear as to whether the assessee has furnished all the details to prove his claim of generation of business income. However, it is seen that the Ld CIT(A) has relied upon certain documents and evidences in order to accept the claim of the assessee. We also notice that the Ld CIT(A) has not called for any remand report from the AO. Hence, we notice that there is violation of Rule 46A of Income tax Rules. In any case, it is the contention of the assessee that the flats were booked at the then prevailing market price and the compensation was also computed on the basis of then prevailing market price. It is not clear as to whether the Ld CIT(A) has considered these facts. Under these set of facts, we are of the view that this issue needs to be restored to the file of the AO for examining it afresh by duly considering the evidences and information relating to the transactions. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining it afresh by duly considering the information and 4 Nailesh S. Mehta ITA. No.4847/Mum./2017 explanations that may be furnished by the assessee. After affording adequate opportunity of being heard, the AO may take appropriate decision in accordance with law.