NENNI BUILDERS & DEVELOPERS P. LTD,MUMBAI vs. THE CIT 7, MUMBAI

Order : आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the assessee against order of Ld. Commissioner of Income Tax-7, Mumbai, {(in short ‘CIT’}, dated 14.10.2008 passed u/s 143(3) r.w. section 263 of the Act, for the A.Y.2005-06 on the following grounds: “1.The revisional order passed u/s.263 of the I.T. Act, 1961, by the learned Commissioner of Income Tax, is bad in law and bad in facts.

3. The learned CIT has erred in holding that the assessment order passed u/s.143(3) of the I. T. Act, 1961 was erroneous and prejudicial to the interest of the revenue, merely on the basis of conjectures and surmises. 4.The learned CIT has grossly erred in holding that no proper inquiry was conducted by the Assessing Officer prior to passing of order u/s.143(3) of the I. T. Act, 1961 though there is nothing on record to support his convictions.

Name of the party Amount 1.M/s. Saibaba Developers- Bangalore 28,00,000 2. Smt. Shilpa Jhaveri – Bangalore 2,25,000 3. Smt. Yaksha Shah - Bangalore 2,25,000 4.Smt. Maya Sheth, Bangalore 2,25,000 5.Smt. Sonali Marwaha - Bangalore 2,25,000 6.Capt. Dheeraj .Bhargava - Bangalore 25,000 7.Dr. Pankaj Bhargava Bangalore 25,000 37,50,000 3.3. It was analysed by the Ld. CIT(A) that the compensation was claimed to had been paid to these parties on the ground that transactions of sale of land to these persons were cancelled. It was further noted that though the assessee had submitted few details during the assessment proceedings, but no examination of the same was done by the AO. Thereafter Ld CIT pointed out various apparent fallacies in the submissions made by the assessee for justifying its claim, which were not examined by the AO. Finally, after taking into consideration reply by the assessee, Ld. CIT held that the original assessment order as erroneous and prejudicial to the interest of revenue and the same was set aside with the direction to pass a fresh assessment order, after conducting necessary inquiries and after giving adequate opportunity of hearing to 4 Nanni Builers the assessee in respect of the issues which were covered in the revision order. 3.4. Being aggrieved, the assessee filed an appeal before the Tribunal. During the course of hearing, Ld. Counsel submitted that details in this regard were placed on the file of the AO and therefore, it can be presumed that AO had made necessary inquiries, and thus, it is at best a case of insufficient enquiry, and an assessment order cannot be held to be erroneous for insufficient inquiries. 3.5. Per contra, Ld. DR submitted that it is a case of total absence of inquiry on the part of the AO qua impugned issues. The perusal of assessment records reveals that only primary evidences were given, whereas there were alarming discrepancies which were floating on the surfaced it and any person of ordinary prudence would have made further inquiries to make at least basic examination of the evidences brought on record by the assessee. It was a case of non- application of mind on the part of the AO qua all the issues as have been raised in the order passed by u/s 263. It was further stated by him that in any case, Ld CIT has merely set aside the assessment order for de-novo assessment, after giving adequate opportunity of hearing to the assessee and therefore, no prejudice is caused to the assessee. In view of these facts, he requested for upholding the order passed u/s 263. 3.6. We have gone through the original order passed by the AO, details/evidences shown to us and order passed u/s 263 5 Nanni Builers and also considered the submissions made by both the sides before us. It is noted from the paper book filed before us that assessee had submitted to the AO, details of work-in-progress, land development charges and compensation paid vide letter dated 17th/18th December 2007. These evidences were placed on record by the AO and thereafter assessment order was passed on 28.12.2007. Nothing has been brought before us by the Ld. Counsel despite our specific query in this regard to show that what queries were raised by the AO in this regard. Nothing was brought before us to show any application of mind by the AO with respect to the details submitted. On the other hand, Ld. CIT has made threadbare analysis of the compensation claimed to have been paid to each of the parties and pointed out glaring discrepancies and contradictions in the claim made by the assessee on account of compensation charges and details/evidences filed in support of this claim. The analysis made by the Ld. CIT with respect to impugned claim is reproduced hereunder for the sake of ready reference:

“M/s. Sal Baba Developers :- As per the Memorandum of Understanding dated 08/08/2000 for 1.09 Acres of land, the sale consideration payable is Rs.7.35 lakhs. In the said agreement it is stated that the sum of Rs.5 lakhs has already been received vide cheque No. 412535 dated 30/06/2000 drawn on Union Bank of India. The balance consideration was to be paid within one year from the date of the said agreement. The relevant Deed of Cancellation is dated 10/12/2003. It has been stated in the said Deed of Cancellation that the previous Memorandum of Understanding dated 08/08/2000 and 07/02/2002 shall be cancelled on receiving the 6 Nanni Builers compensation of Rs.5 lakhs per acre. As regards the amount received from M/s. Sai Baba Developers, the Deed of Cancellation confirms that the payment of Rs.4.50 lakhs only had been received as under :- 13/11/2002 Rs.0,50,000/- 12/06/2003 Rs.2,00,000/- 02/09/2003 Rs.2,00,000/- Total Rs.4,50,000/- The assessee has agreed to return the said amount of Rs.4.50 lakhs along with compensation of Rs.6,12,500/-. Thus, the assessee was to refund the total amount of Rs.10,62,500/- in all as per the said Deed of Cancellation. The obvious inconsistency thus noticed is that the fact that the assessee had already paid a sum of Rs.5,00,000/- as per the Memorandum of Understanding dated 08/08/2000 is not found to be true as per the Deed of Cancellation dated 10/12/2003. Secondly, the amount received by the assessee was only Rs.4.50 lakhs and that too towards the end of 2002 and in year 2003 as stated above. Hence, the compensation being paid is not relatable to the interest that might have been payable ©12% by the assessee and the rate of compensation fixed is arbitrary. As against the rate of Rs.6 lakhs per acre at which the assessee had agreed to sale the land, the compensation is being paid ©Rs.5 lakhs per acre which on the face of it is unreasonable in the given circumstances. Further, as per the Memorandum of Understanding dated 08/08/2000, the agreement was to sale 3.27 acres of land to M/s. Sai Baba Developers for a sum of Rs.22.05 lakhs. In the said Memorandum, the assessee has stated to have received a sum of Rs.10,000/- by cheque dated 08/08/2000. As per the Deed of Cancellation dated 10/122003, the assessee had received a total amount of Rs.12.10 lakhs as under :- 30/06/2000 Rs.5,00,000/- 04/03/2002 Rs. 1,00,000/- 7 Nanni Builers 04/03/2002 Rs. 1,00,000/- 20/07/2002 Rs.0,10,000/- 04/08/2002 Rs.2,00,000/- 31/10/2002 Rs. 1,00,000/- 16/01/2003 Rs. 1,00,000/- 26/08/2003 Rs.1,00,000L Total Rs. 12,10,000/- As per the Deed of Cancellation, the assessee agreed to pay compensation ©Rs.5 lakhs per acre i.e. total amount of Rs.18,37,500/-. Thus, the assessee agreed to pay total amount of Rs.30,47,500/- towards refund of the amount received as well as the compensation. Here also it is seen that the amount of Rs.10,000/- stated to have been received on 08/08/2000 as per the Memorandum of Understanding does not find place in the Deed of Cancellation. The payments received against the agreement of sale are mostly in the year 2002 and 2003. Here also, the basis of compensation of Rs.5 lakhs per acre is not based on any definite logic. The last agreement with M/s. Sai Baba Developers is in respect of sale of 28 gunthas of land. The agreement is dated 01.07.2002. The deed of Cancellation states the rate of compensation at Rs.6 lakhs per acre. An amount of Rs.2.60 lakhs had been received as per the Deed of Cancellation dated 10/12/2003 as under:

08/08/2000 Rs.0,10,000/- 06/03/2003 Rs.1,00,000/- 31/05/2003 Rs. 1,00,000/- 20/11/2003 Rs.0,50,000/- Total Rs.2,60,000/- The assessee agreed to pay the compensation @Rs.5 lakhs per acre and the total compensation payable was agreed to be Rs-3.50 lakhs. The assessee was to return the total amount of Rs.6.10 lakhs including the 8 Nanni Builers compensation as per the agreement in the Deed of Cancellation. The rate of compensation being paid in this case also has no connection with the interest that would have been payable on the amounts received. The bulk of the amounts received and in the year 2003. Hence, the payment of compensation was arbitrary in this case also. From the above discussion it is clear that there was a case for the Assessing Officer to have examined the circumstances in which the assessee had agreed to pay compensation to M/s. Sai Baba Developers as per the Deeds of Cancellation as aforesaid, the credentials of M/s. Sai Baba Developers and to make further enquiries by issuing summons and recording the statement of the partners of M/s. Sal Baba Developers to ascertain the truth regarding the payment of compensation at the rates agreed as per the Deeds of Cancellation. The conduct of the assessee in paying the amount of compensation as agreed to is also not based on sound business considerations. The reason for cancellation of agreements as stated in the Deed of Cancellation is that the purchasers had decided not to proceed with the purchase of the property since the project had been delayed. This reason does not appear to be a sound reason for the assessee to have paid such a heavy compensation to the purchasers. Hence, the truth in this regard was required to be found out. The Assessing Officer has accepted the facts mentioned in the agreement without making any external enquiries which makes the order erroneous and prejudicial to the interest of revenue. Payment of compensation to Smt. Shilpa Jhaveri, Smt. Yaksha Shah, Smt. Maya Sheth and Smt. Sonali Marwaha :- The assessee's A.R. has filed before me the Xerox copy of the identical agreement to sale dated 26/08/1999 between the assessee and the aforesaid persons. As per the agreement, the aforesaid persons had paid the aggregate consideration of Rs.8.25 lakhs each for three plots. The details of payments on different dates made are also mentioned in the 9 Nanni Builers agreement. The agreement of cancellation is dated 05/07/2004 between the aforesaid persons and the assessee. The agreement starts with the words " ..and were as the First Party has erroneously executed and registered and in fact the purchaser therein and (the First Party herein) never desired of executing the Sale Deeds dated 2211212001 and acquiring any rights under the schedule property therein and she has not taken the possession of the schedule property or portion therefore and whereas it/s therefore necessary to cancel the Agreement to Sell dated 26/08/1999 decided not to proceed further since the project has been delayed and has agreed to cancel the agreement dated 26/08/1999 on receiving a compensation of Rs.75,000/- (Rupees seventy five thousand only) per plot, totaling to Rs.2,25,000/- (Rupees two lakhs twenty five thousand only)....... From this agreement of cancellation, it is clear that it is the purchasers who had erroneously executed the sale deeds dated 22/10/2001 and which they never desired of executing. Under these circumstances, the rationale of paying compensation by the assessee is questionable. This aspect was not examined by the Assessing Officer during the assessment proceedings. The assessee's A.R. has also produced before me the copy of the deed of sale executed on 22/12/2001. It is absolute deed of sale to the assessee under which the purchaser had delivered all the copies of title. This sale deed is in respect of the single plot of land for which sale consideration of Rs.2,75,000/- had been paid and nothing else was payable to the assessee by the purchaser. The deed of sale is identical in respect of the remaining plots of land which find place in the agreement to sale dated 26/08/1999. The agreement to sale in respect of the remaining three persons along with the terms and conditions are identical and need not be repeated. It is needless to say that the rationale of paying compensation in such a circumstance was never examined by the Assessing Officer during the course of assessment proceedings. Capt. Dheeraj Bhargava & Dr. Pankaj Bhargava:-

10 Nanni Builers These persons have been paid compensation of Rs.25,000/- each. The assessee’s A.R. has produced the copy of Deed of Cancellation dated 22/09/2004 in these cases. The reason for cancellation of agreement dated 15/12/2000 is again stated to be delay in the project. These persons paid only Rs.25,000/- against purchase of the site as mentioned. The genuineness and the reasons for payments of compensation needed to be examined by the Assessing Officer which was not done. In view of the above, the entire amount of compensation of Rs.37.50 lakhs paid by the assessee was needed to be examined and necessary enquiries conducted which was not done by the Assessing Officer during the course of assessment proceedings.” 3.7. Similarly, with regard to traveling expenses also, Ld. CIT(A) pointed out following discrepancies and contradictions: “(iii) Travelling expenses: - In the show cause notice u/s.263, the issue relating to travel expenses of Rs.4,02,521/- had been raised. In reply the assessee's A.R. has stated that the Assessing Officer has already disallowed foreign travel expenses of a director amounting to Rs.1,10,414/-. The balance amount of Rs.2,92,107/- is stated to be attributable to domestic travel undertaken by the directors of the company for the purpose of business of the company. The reply given is general. Apart from the visit to Mumbai and Bangalore which are the places of business, the expenses debited are for visit to Delhi and Chennai also. The Assessing Officer should have examined whether the expenses were actually incurred for business purposes.” 3.8. It is noted by us that perusal of the assessment records along with original assessment order reveals that there has not been any application of mind on the part of AO. Nothing has been shown to us if any queries were raised by the AO in this 11 Nanni Builers regard, despite the fact that there were numerous discrepancies as have been pointed out by Ld. CIT, for which no answers were available on record. It appears that assessment order has been passed in a highly casual manner without going into the facts at all. It is apparently a case of absence of inquiry. Under these circumstances, we find original assessment order to be erroneous and prejudicial to the interest of revenue since the CIT has been able to show serious doubts on the allowability of the claim made by the assessee. Despite that, the claim was not disallowed by Ld. CIT and he has only given direction to the AO to pass afresh assessment order after conducting necessary inquires as indicated by the CIT in the revision order and after giving adequate opportunity of hearing to the assessee following the principles of nature justice. We do not find any need or justification to interfere in the revision order passed by the Ld. CIT and therefore, same is upheld.

Order pronounced in the open court on 10th August, 2016. (Amit Shukla ) (Ashwani Taneja) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER मुंबई Mumbai; "दनांक Dated : 10/08/2016 ctàxÄ? P.S/."न.स.