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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. ABRAHAM P. GEORGE & SHRI. VIJAYPAL RAO
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. VIJAYPAL RAO, JUDICIAL MEMBER (Assessment Year : 2010-11) M/s. Vikram Traders, Subramanyapura, Bangalore 560 061 .. Appellant PAN : AAAFV7242B v. Asst. Commissioner of Income-tax, Circle -10(1), Bangalore .. Respondent Assessee by : Shri. C. Ramesh, CA Revenue by : Shri. Sunil Kumar Agarwala, JCIT Heard on : 26.08.2015 Pronounced on : 04.09.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by assessee, it assails the direction of CIT (A) to treat a sum of Rs.2,50,00,000/- received by it from M/s. Prestige Estate Projects P. Ltd, (in short ‘PEP’) as income assessable under the head ‘profits /gains from business / profession’. As per the assessee by the very nature of the deal under which the said amount was received, it was only capital receipt.
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Facts apropos are that assessee engaged in the business of trading in fabrics, power generation etc., had filed its return for the impugned assessment year declaring income of Rs.1,83,82,717/-. During the course of assessment, AO noted that a sum of Rs.2,50,00,000/- was shown by the assessee as payable to M/s. PEP, among other creditors. AO sent a letter to M/s. PEP for confirmation of the balance to which they replied as under :
“this has reference to your office letter dated October 16, 2012 wherein your gudself have asked us to submit certain information on the captioned subject. In this regard we would like to submit as under :
1. 1. We do not have any amount payable to M/s. Vikram Traders as on March 31, 2010 as per our books of accounts.
2. Our PAN is AABCP8096K. We are assessed by DCIT / JCIT Central Circle 1(1), Bangalore Hope this will suffice your requirement.”
Assessee was put on notice. Reply of the assessee was as under :
“In connection with this transaction, we submit that an advance of Rs.4.95 crores was made to M/s. Prestige Developers for purchase of property. The deal did not come through and M/s. Prestige Developers repaid an amount of Rs.7.45 Crores. The difference was shown as payable to M/s. Prestige Developers in the books. However, on negotiations it was agreed that the amounts were no longer payable and the surplus of Rs.2.5 crores has been offered to tax for the A. Y. 2011-12.”
AO was of the opinion that assessee should have admitted the income in the impugned assessment year and should not have postponed it to the next year. As per the AO, assessee could have filed a revised return including the above amount also, the moment it became aware that ITA.538/Bang/2014 Page - 3
nothing was payable to M/s. PEP. He therefore treated the amount as cessation of liability and added it to the income of the assessee.
Aggrieved assessee moved in appeal before the CIT (A). As per the assessee it was not in the line of real estate business. According to it the advance of Rs.4.95 crores to M/s. PEP was with the intention of buying a property in their Silver Oak project. As on 31.03.2010, when the project did not materialise assessee was still in negotiation with PEP. Meanwhile M/s. PEP had paid back Rs.7.45 crores and the surplus of Rs.2.50 crores was a liability to M/s. PEP. Such surplus receipt could at the best be considered as liquidated damages and was in the nature of capital receipts. As per the assessee, it had acquired no rights from M/s. PEP on payment of Rs.4.95 crores and hence no capital gains could be computed. Since it was a capital receipt, as per the assessee, it could not be taxed under the head income from other sources’ also. Reliance was placed on the decision of coordinate bench in the case of Yogesh Arora (P) Ltd (2009) TIOL-511-ITAT-Bang, and that of Hon’ble Calcutta High Court in the case of CIT v. Ashoka Marketing Ltd [(1987) 164 ITR 664].
CIT (A) after considering the submission of the assessee and the business relationship that partners of the assessee firm had with M/s. PEP, held that the surplus was nothing but business receipt in assessee’s hands. Reasons given by the CIT (A) are summarised hereunder :
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(i) Though there was no written agreement between assessee and PEP, the advance of Rs.4.95 crores paid to M/s. PEP was shown by the assessee under the head ‘Advance to suppliers / creditors’ in its accounts.
(ii) There was nothing to indicate that the cheque for Rs.2.50 crores received by assessee from M/s PEP over and above the sum of Rs.4.95 crores refunded by them was a result of any negotiations.
(iii) Letter dt.31.05.2006, under the cover of which assessee had given the advance of Rs.4.95 crores was only a self-serving document.
(iv) Though section 41(1) was not applicable, the surplus received was Revenue in nature and the dealings had colour of a business venture.
(vi) Since the transactions were a part of a business venture, surplus was taxable under the head ‘Profits and Gains from Business / Profession’.
Now before us, Ld. AR strongly assailing the orders of the authorities below, submitted that assessee was in the business of trading in fabrics and had never done any real estate business. Intention of the payment of Rs.4.95 crores to M/s. PEP was only investment. As per the Ld. AR, there was no participation by assessee in any business venture. Further as per the Ld. AR, what was paid back by M/s. PEP in excess of Rs.4.95 crores was only compensation. As per the Ld. AR such surplus was not taxable under any provisions of the Act. Apart from the citations placed before the Ld. CIT (A), reliance was also placed on the following :
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• Digital Electronics Ltd v. ACIT– dt.21.06.2013 • B. Ramakrishnaiah v. ITO [(2010) 39 SOT 379] • Govindbhai C. Patel v. DCIT [(2010) 1 ITR (Trib) 34]
Again as per the Ld. AR, even presuming that there was a business venture, the business itself had never taken off and hence the receipt of compensation by virtue of the judgment of Hon’ble Delhi High Court in the case of Khanna and Annadhanam v. CIT [(2013) 351 ITR 0110] was receipt of a capital nature.
Per contra Ld. DR strongly supported the order of CIT (A).
We have perused the orders and heard the rival contentions. Admittedly there was no agreement between assessee and M/s. PEP at any point of time. The only document on which assessee places reliance is a letter dt.31.05.2006, sent by it to M/s. PEP. This letter is reproduced hereunder :
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There is no communication from M/s. PEP on any of the aspects mentioned in the above letter. Fundamental for a valid contract is either a written or an oral agreement. Above letter is not an agreement. At the best it is only a conditional offer. Not only is there any acceptance from M/s. PEP, there ITA.538/Bang/2014 Page - 7 is a communication dt.07.11.2012 from M/s. PEP to the AO reproduced by us in para 2 above which points to an opposite position. Thus claim of the assessee what was received by it from M/s. PEP, in excess of what was paid by it, was only a compensation in the capital field falls flat.
Now coming to the nature of receipt, admittedly assessee had shown the sum of Rs.4.95 crores, paid by it to M/s. PEP in its Balance Sheet as on 31.03.2009 under the head ‘Advance to Suppliers and Creditors’. That it was having business ventures in the nature of property development along with M/s. PEP is clear from the following clarifications given by it before the CIT (A) :
Letter dt.31.05.2006 written by assessee to M/s. PEP also clearly show that its intent was nothing but to do the business of construction and selling land after development and construction. Thus the amount of Rs.4.95 crores paid was nothing but an advance for acquiring the stock for its real estate development venture. Instead of getting the developed areas as desired, what assessee received was a sum of Rs.7.45 crores from M/s. PEP. Surplus in our opinion had all the features of business profit, since assessee’s adventure or foray into real estate development was only a trading or business venture. The back ground of the transaction, where partners of assessee firm had already done similar business with M/s. PEP, corroborates this further.
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Before parting it will not be proper if we do not deal with the decisions / judgments relied on by the assessee. Both in the case of Yogesh Arora (supra) decided by the coordinate Bench and in the case of M/s. Ashoka Marketing Ltd, (supra) of Hon’ble Calcutta High Court, concerned assessees had entered into agreements for purchase of property. Here there was no agreement between assessee and M/s. PEP and hence these decisions would not have any relevance.
As to the decision of Ahmedabad Bench of this Tribunal in the case of Govind C. Patel (supra), it was cessation of liability u/s.41(1) of the Act, where a liability under capital account was written off. In the case before us we have already held that surplus received by the assessee was revenue in nature and hence this case also has no relevance. 15. As to the case of B. Ramakrishnaiah (supra) decided by Hyderabad Bench of this Tribunal the question was whether capital gains is leviable when cost cannot be computed. The receipt in the case of the assessee here is in the Revenue field and hence this case has no applicability. 16. Vis-a-vis the decision of Mumbai Tribunal in the case of Digital Electronics Ltd (supra) it is neither a reported decision nor has assessee filed a copy before us. 17. As to the judgment of Hon’ble Delhi High Court in the case of Khanna & Annadhanam (supra) the compensation received by the concerned assessee was based on an agreement cancelling an agency of trading nature, assessee having represented the other party for a long period of 13 years. In the case before us ITA.538/Bang/2014 Page - 9 assessee was not representing M/s. PEP, nor was there any cancellation of agency. 18. In view of the above discussion we are of the opinion that there is no reason to interfere with the order of the CIT (A). 19. Appeal of the assessee stands dismissed. Order pronounced in the open court on 4th day of September, 2015.