Income Tax Appellate Tribunal – Mumbai
Darshan Realtors P. Ltd, Mumbai vs Ito 6(2)(2), Mumbai on 26 September, 2018 आयकर अपील
य अ धकरण, मंब ु ई यायपीठ, जे, मंब ु ई । IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “J”, MUMBAI ी जो ग दर संह, या यक सद य एवं ी एन. के. धान, लेखा सद य, के सम Before Shri Joginder Singh, Judicial Member, and Shri N.K. Pradhan, Accountant Member ITA NO.4009/Mum/2016 Assessment Year: 2012-13
Income Tax Officer-6(2)(2), M/s Darshan Realtors
R. No.562, Aayakar Bhavan, बनाम/ Pvt. Ltd.
M. K. Road, Churchgate, Omakar House, Off Vs.
Mumbai-400020 Eastern Highway, Opp.Sion, Chunnabhatti Siugnal Sion (East), Mumbai-400022 (राज व /Revenue) ( नधा”#रती /Assessee)
P.A. No. AADCD4673N C.O. No.299/Mum/2017 (Arising out of ITA NO.4009/Mum/2016) Assessment Year: 2012-13
M/s Darshan Realtors Pvt. Income Tax Officer-
Ltd. बनाम/ 6(2)(2),
Omakar House, Off Eastern R. No.562, Aayakar Vs.
Highway, Opp.Sion, Bhavan,
Chunnabhatti Signal Sion M. K. Road, Churchgate,
(East), Mumbai-400020
Mumbai-400022 ( नधा”#रती /Assessee) (राज व /Revenue)
P.A. No. AADCD4673N 2 M/s Darshan Realtors Pvt. Ltd. ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 राज व क ओर से / Revenue by Shri C.S. Gulati CIT-DR नधा”#रती क ओर से / Assessee by Shri Dharmesh Shah & Shri Dhaval Shah ु वाई क’ तार(ख / Date of Hearing : सन 09/07/2018 आदे श क’ तार(ख /Date of Order: 26/09/2018 आदे श / 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. During hearing, the ld. CIT-DR, Shri C.S.Gulati, advanced arguments which are identical to the ground raised. Our attention was invited to para-1.2 (page-1) of the assessment order by claiming that no role was played by 3 M/s Darshan Realtors Pvt. Ltd. ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 Akshata Mercantile Pvt. Ltd., thus, the payment so made to it is not a business transaction. Our attention was further invited to para-3.7 of the assessment order along with page- 29 of the impugned order. Plea was also raised that even the Ld. Assessing Officer did not investigate the matter properly but still a detailed assessment order has been framed. It was also pleaded that even the Ld. Commissioner of Income Tax (Appeal) ignored the factual matrix and was expected to direct the Assessing Officer to examine the case properly but that was also not done. It was pleaded that the issue may be set-aside to the file of the Ld. Assessing Officer. Reliance was placed upon the decision from Hon’ble Delhi High Court in the case of CIT vs M/s Jansampark Advertising and Marketing Pvt. Ltd. (ITA No.525 of 2014), order dated 11/03/2015. 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. ITA No.4009/Mum/2016 & 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. ITA No.4009/Mum/2016 & 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. ITA No.4009/Mum/2016 & 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. ITA No.4009/Mum/2016 & 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 W ork 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. ITA No.4009/Mum/2016 & 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 a n d b e a r a l l t h e r e n t an d d e p o s i t s f o r t h e t r a n s i t accommodation of the eligible slum dwellers; i) The Akshata shall deal with all slum dwellers, encroachers. occupants 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; k) To generally do any and all other acts, deeds, matters and things 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. ITA No.4009/Mum/2016 & 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.
14. Force Majeure (a) Upon the occurrence of an event of force majeure, the Party (“Affected
Party”) who shall be unable to perform its responsibilities under this
Agreement shall, within 14 (fourteen) days of the occurrence of such an
event of Force Majeure bring the same to the notice of the other Party
(“Unaffected Party”) and also inform the Unaffected Party about the steps
undertaken by the Affected Party to mitigate the effect of the occurrence of
such event of Force Majeure;
(b) The Affected Party shall not be liable for any failure or delay in complying
with its roles and/or responsibilities under this Agreement to the extent such
failure or delay arises directly by result of the occurrence of an event of Force
Majeure and the time for the performances of the roles and/or
responsibilities of the Affected Party shall accordingly stand extended.
15. Arbitration and Jurisdiction
(a) All disputes, claims and/or questions of whatsoever nature which may
arise with respect to this Agreement between the Parties hereto and/or
any disputes, claims and/or questions of whatsoever touching or relating to or
arising out of the Agreement or the construction or application thereof or any
clauses or thing herein or therein contained or in respect of the duties and
responsibilities of either Party. thereunder or as to any act or omission of any
Party or as to any other” matter in anywise relating – to this Agreement or the
rights., duties and liabilities of either Party under this Agreement. Shall be
referred to the sole arbitration of either a retired Judge of the Supreme
Court or a retired Judge or the Bombay High . Court to be mutually
appointed . by .the Company and Akshata. The place of arbitration shall be
Mumbai. The arbitration than be conducted in accordance with the
provisions, of the Arbitration and Conciliation Act, 1996 or any re-enactment or statut
ory- Modification thereof. The language of arbitration shall be English; 10 M/s Darshan Realtors Pvt. Ltd. ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 (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. 19. Miscellaneous (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. ITA No.4009/Mum/2016 & 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:- f) 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; 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. ITA No.4009/Mum/2016 & 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) TH ROOM NO.510, 5 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
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ITA No.4009/Mum/2016 & 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 Business income assessed as per this order Rs.30,84,48,471 (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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M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 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.
ITA No.4009/Mum/2016 & 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
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ITA No.4009/Mum/2016 & 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
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ITA No.4009/Mum/2016 & 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.
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M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.

3. Having reasons to believe that income had escaped assessment,
the AO re-opened the case for AY 2004-05 under Section 147 of
Income Tax Act and issued notice under Section 148 on
18.04.2007. In response to the notice, the assessee filed a copy of
the return that had been submitted on 01.11.2004.

4. During the assessment proceedings, thus re-opened, the AO
noticed that the assessee had raised share capital from the following
parties to the extent indicated against each:-

1. M/s Labh – Tronics Overseas (P) Ltd. 5,00,000/-
2. M/s F.N.S. Consultancy 7,00,000/-
3. M/s C.V. Metal Powder 5,00,000/-
4. M/s Maestro Mktg.(P) Ltd. 4,00,000/-
5. M/s Dignity Finvest (P) Ltd. 4,00,000/-
6. M/s Ethnic Creation (P) Ltd. 3,00,000/-
7. M/s M.V. Marketing (P) Ltd. 3,00,000;’:·
8. M/s Akshay Sales (P) Ltd.
5,00,000/-
9. M/s S.G.C. Publishing (P) Ltd. 10,00,000/-
10. M/s Maestro Mktg. & Advertising (P) Ltd. 13,00,000/-
11. M/s Fair N Square Exports (P) Ltd.
5,00,000/-
12. M/s Jain Projects & Fin. Consultants (P) Ltd.
7,00,000/-
TOTAL 71,00,000/-
23
M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 5. It is the case of the Revenue that on examination of the details,
and as per the information collected on the basis of investigation
carried out, it was found that share capital had been received from
the following three entry operators who are allegedly engaged in
the business of giving accommodation entries:

a. Maestro Mktg. & Advertising (P) Ltd.
b. Fair N Square Exports (P) Ltd.
c. Jain Projects & Fin. Consultants (P) Ltd.

6. It is stated that in order to verify the genuineness of the claim of
receipt of share application money, summons were issued under
Section 131 of the Income Tax Act to the twelve entities in
response to which, no one appeared and some of the processes
returned un-delivered with the postal remarks “left/no such
person”. In this fact situation, the AO called upon the assessee to
produce the parties/persons in question which direction was not
complied with.

7. The AO, thus, treated the amount of ₹71 Lacs as unexplained
credit in terms of the provision contained in Section 68 of Income
Tax Act and added it to the income of the assessee. The assessee’s
explanation was rejected by drawing adverse inferences on the
following reasoning:- ― (i) Mere payment of a/c payee cheque is not sacrosanct.
(ii) Bank account revealed a uniform pattern of cash deposit of equal amount by cash or cheque in respective accounts.
(iii) Assessee failed to produce the directors of the companies from whom the share application money was received.
(iv) Summons u/s 131 of the Act were issued, but some of the summons were received unserved with postal remarks “left/no such person”; none appeared in response to served summons.‖ 8. Further, a sum of ₹1,42,000/- taken as probable commission
given out of the unaccounted income not having been booked was
also added to the income.

9. The assessee preferred appeal against the assessment order
before the Commissioner of Income Tax (Appeals) [hereinafter
referred to as “the CIT (Appeals)”] making the following
submissions:- ―
24 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.

10. The appeal was allowed by the CIT (Appeals) deleting the
additions made by the AO, inter alia, relying upon CIT v. Lovely
Exports Pvt. Ltd., (2008) 216 CTR 195 (SC). The Revenue having
preferred appeal (ITA No. 4839/Del/2009), to which the assessee
had also filed counter-objection (No. 103/Del/2011), was
unsuccessful before ITAT.

11. The ITAT has noted in the impugned order that in the case of
reassessment, the assessee had been asked to show the identity and
genuineness of the share applicants and creditworthiness of the
transactions and that the assessee had responded by clarifying that
the share application monies had been received through account
payee cheques, whilst filing following documents before the AO:-
― (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.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 office of ROC along with the subscription of the capital details, number and dates of payments.

12. The contentions of Revenue were rejected by the ITAT with
observations to the following effect:- ―
7. … the assessee consequent to the assessing officer’s queries furnished all the relevant documentary evidence before the assessing officer. From the perusal of record and ordersheets it clearly emerges that the requirement of physical production of the parties was communicated to the assessee as late as on 17-12-2008 as against the date of assessment being 26- 12-2008. Similarly, from the entry dated 22-12-2008 the assessing officer vaguely stated that some summons were issued on some parties, some came unserved and none appeared. The same is sketchy and non- specific. We find merit in the argument of the ld. Counsel that it will not be easily possible to ask an assessee to accompany him to the proceedings before the assessing officer. In our view, adverse inference drawn on these issues is unjustified.

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.

13. It must be noted here that it has been the case of the Revenue
that the entities which had given share capital to the assessee
company were same as had similarly given share capital to another
entity named M/s Nova Promoters and Finlease (P) Ltd. It is stated
that the bank accounts statements indicate that there is a uniform
pattern of transaction wherein issue of cheques is immediately
preceded by the deposits of equal amounts in the account either in
cash or through cheques/transfer entries. In the case of M/s Nova
Promoters and Finlease (P) Ltd., the addition made by the Revenue
of the amounts received from similar entry providers was upheld by
this court. Relying upon, inter alia, the decision of this court in CIT
v. Nova Promoters and Finlease (P) Ltd., (2012) 342 ITR 169
(Del.), the Revenue argues that similar entries in the case of
assessee herein cannot be treated differently.
26
M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 and justice to express a view to the contrary.‖ [emphasis supplied] 15. In upholding the contention of lack of inquiry on the part of the
AO, the following submissions of the assessee were accepted by
the ITAT:- ― 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] 16. By way of the cross-objections, the assessee has raised the issue
of limitation bar against the re-opening which had not been
considered by the authorities below. The ITAT, having rejected the
appeal of the Revenue, declined to go into that issue observing that
it had been rendered mere academic and infructuous.

17. The Revenue is aggrieved on the ground that the reliance on
CIT v. Gangeshwari Metal Pvt. Ltd. (supra) was not correct
inasmuch as unlike the said case, here the AO had issued summons
to the share applicants which either remained unserved or were not
28 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 responded to and when the assessee was confronted with this fact-
situation and given opportunity to produce the share applicants,
there was failure in compliance.

18. It must be noted at this stage that the assessee had also come up
with appeal (ITA No. 289/2014) impugning the order dated
14.06.2013 of ITAT raising grievances as to validity of re-opening
of the assessment, questions in which respect had remained
unaddressed since the cross-objections were rejected as
infructuous. While entertaining the appeal at hand filed by the
Revenue (ITA No. 525/2014), the Division Bench then seized of
the matter by order dated 29.08.2014 disposed of the assessee’s
appeal with observations that in the event of Revenue succeeding
here, the issue with regard to validity of re-opening would be
remitted to the ITAT for determination.

19. The argument of the Revenue that the entities which had
provided the share capital having been found in case of M/s Nova
Promoters and Finlease (P) Ltd. (supra) to be engaged in the
business of giving accommodation entries, similar transactions
indulged in here cannot be treated otherwise must be rejected
outright. Each case has to be examined on its own merits and the
adverse findings recorded in the other case concerning assessment
of a different assessee cannot hold good or be binding against the
present assessee.

20. The provision contained in Section 68 of Income Tax Act reads
as under:- ― 68. Cash credits.–Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

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.
ITA No.4009/Mum/2016 & 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] 21. It must be mentioned at this stage that two provisos were added
to the main provision in Section 68 as extracted above by Finance
Act, 2012 and came into effect from 01.04.2013. Therefore, they
would not strictly apply to the case at hand which relates to AY
2004-05.

22. The objective behind the provision is to hold the assessee
accountable for each sum found credited in his books of accounts
by responding to the call of the AO to give satisfactory explanation
about “nature and source” of such sums. If no explanation is
forthcoming or the explanation given is found to be unsatisfactory,
the sum of money so credited may be lawfully included in the
income of the assessee for the corresponding period.

23. More often than not, questions have been arising in assessment
proceedings respecting sums found credited in the books of
accounts of companies incorporated under the Companies Act in
the context of their efforts to raise capital through shares, pursuant
to which they receive applications along with share application
money from various persons. If the AO doubts the genuineness of
such investors as had purportedly subscribed to the share capital,
the assessee is generally asked to explain the nature and source as
also the genuineness of the transaction.

24. The provision contained in Section 68 read in above context
suggests that the initial burden of proof is on the assessee to
explain. The question as to what kind of proof is to be furnished by
the assessee to discharge such burden, however, has been the
subject matter of adjudication in a number of judicial
pronouncements, including CIT V. Biju Patnaik, (1996) 160 ITR
674 (SC), crystallizing eventually in the view upheld by the
30 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd.
(supra).

25. The appeal before the Supreme Court in the case of CIT v.
Lovely Exports Pvt. Ltd.(supra) had arisen out of the decision of
this court in the case reported as CIT v. Divine Leasing and
Finance Limited, (2007) 207 CTR 38 (Del.). The judgment of this
court governed three appeals including ITA No. 953/2006
concerning Lovely Exports. The conclusions in para 16 of the
judgment in CIT v. Divine Leasing and Finance Limited (supra)
need to be extracted as under:- ― 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of Section 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Shared Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee. (5) The Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation.‖ [emphasis supplied] 26. The facts of CIT v. Lovely Exports Pvt. Ltd.(supra), as
summarized later in the case of M/s Nova Promoters and Finlease
(P) Ltd.(supra), were as under:- ―…

The assessee-company in that case had furnished the necessary details such as PAN No./income tax ward no./ration card of the share applicants and some of them were assessed to tax. The monies were received through banking channels. In some case, affidavits/confirmations
31 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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] 27. The matter concerning CIT v. Lovely Exports Pvt. Ltd. (supra)
was taken by the Revenue to the Supreme Court. The Special
Leave Petition was dismissed in limine with the following
observations:-

2. Can the amount of share money be regarded as undisclosed income under S. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.‖ 28. The appeals of the Revenue questioning deletion of the addition
in almost similar set of circumstances by the AO involving a
number of similarly placed assessees giving rise to common
questions concerning application of Section 68 of Income Tax Act
were dismissed by another Division Bench of this court by
judgment rendered on 31.01.2011 reported as CIT v. Oasis
Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Del.). Taking note of
the jurisprudential development on the subject as culminating in
judgment of Supreme Court in CIT v. Lovely Exports Pvt.
Ltd.(supra), it was held that the initial burden is upon the assessee
32 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 to explain the nature and source of the share application money and
in order to discharge this onus, the assessee should prove (a) the
identity of shareholder; (b) genuineness of the transaction; and (c)
creditworthiness of shareholders. It was further observed that for
discharging the above burden, the assessee must file some
documents or produce the shareholder to prove his identity. In the
case of subscriber being a company details in the form of registered
address or PAN identity, etc. would suffice. The genuineness of the
transaction may be demonstrated by showing that the assessee had,
in fact, received money from the applicant shareholder and that it
had come not from the coffers of the assessee but from that of the
applicant shareholder. As to the creditworthiness or financial
strength of the subscriber, the proof could include banks statements
of the subscriber showing sufficient balance in its kitty to enable it
to subscribe.
29. In M/s Nova Promoters and Finlease (P) Ltd. (supra), this court
found the facts as under:- ― 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] 30. The judgment in the case of CIT v. Gangeshwari Metal Pvt.
Ltd. (supra), which has been referred by the ITAT in the impugned
order followed the same line of reasoning but with adverse result
for the Revenue because, on facts, it was held that the assessee
having furnished all the requisite material, there had been a failure
on the part of the AO to conduct proper inquiry.

31. In the case at hand, the counsel for the assessee submitted that a
large number of documents were made available to the AO to
prove not only the identity of some of the entities, the share
application money received from which was under scrutiny but also
their respective creditworthiness and the genuineness of each
transaction, and yet they were not properly examined. The counsel,
33 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.

32. On the other hand, the counsel for the Revenue submitted that
the conclusion of the CIT (Appeals) that the genuineness of the
transactions of each of the twelve entities was duly established is
unfounded, in that, the order leading to such conclusion is silent as
to the material, which it is based upon. Counsel submitted that the
ITAT was not correct in concluding that the assessee was not
confronted with the adverse material. He pointed out that this
conclusion is in the teeth of the other conclusions that insufficient
time was given for production of the parties in question after the
summonses under Section 131 were returned unserved. It is further
argued by the Revenue that the appellate authorities below were
duty bound in law to hold proper inquiry in to the facts before
reaching the conclusions on facts and, for such purposes, a remand
report could and should have been called for and subjected to
detailed analysis.

33. Significantly, prior to the amendment of Section 68 by the
Finance Act, 2012 (whereby the two provisos quoted earlier were
inserted), there was no express statutory obligation on the part of a
company called upon it to explain a sum credited in its books of
accounts described as share application money to support it with
explanation of the share applicant about the nature and source of
such sum credited in his name. In such scenario, it could not be
expected that the company which had received the share
application money in response to the offer made to the public at
large to collect minute details respecting the share applicants to the
extent of it being able to vouchsafe the financial worth of each
subscriber, such that, when called upon by the Income Tax
authorities, it would be in a position to conclusively prove their
respective creditworthiness. But then, given the larger objective
behind the provision contained in Section 68, the primary aim of
which is to ensure that no monetary transaction remains
34 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.

34. From the orders passed by the three authorities below, it does
appear that the assessee in the case at hand had submitted some
documents respecting the twelve entities indicative of their
identity/existence. Some further material appears to have been
shared by the assessee with the AO to show that the share
application money in each case had come to its credit through
banking channels. From the conclusions reached by CIT (Appeals),
which were endorsed by ITAT, it appears that the first appellate
authority was satisfied with the explanation of the assessee only
because the identity of the shareholders had been “established”.
The CIT (Appeals) rejected the additions made by the AO, in
which result the ITAT concurred, on the reasoning that the AO had
failed to point out “any discrepancy” in the evidence relied upon by
the assessee and because the AO had failed to “pursue the matter
further for making inquiries”, inasmuch as “it was equally the duty
of the AO to have taken steps to verify their assessment records”.

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.
ITA No.4009/Mum/2016 & 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.

38. The provision of appeal, before the CIT (Appeals) and then
before the ITAT, is made more as a check on the abuse of power
and authority by the AO. Whilst it is true that it is the obligation of
the AO to conduct proper scrutiny of the material, given the fact
that the two appellate authorities above are also forums for fact-
finding, in the event of AO failing to discharge his functions
properly, the obligation to conduct proper inquiry on facts would
naturally shift to the door of the said appellate authority. For such
purposes, we only need to point out one step in the procedure in
appeal as prescribed in Section 250 of the Income Tax Act wherein,
besides it being obligatory for the right of hearing to be afforded
not only to the assessee but also the AO, the first appellate
authority is given the liberty to make, or cause to be made, “further
inquiry”, in terms of sub-section (4) which reads as under:- ― 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.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 39. The further inquiry envisaged under Section 250(4) quoted
above is generally by calling what is known as “remand report”.
The purpose of this enabling clause is essentially to ensure that the
matter of assessment reaches finality with all the requisite facts
found. The assessment proceedings reopened on the basis of
preliminary satisfaction that some part of the income has escaped
assessment, particularly when some unexplained credit entries have
come to the notice (as in Section 68), cannot conclude, save and
except by reaching satisfaction on the touchstone of the three tests
mentioned earlier; viz. the identity of the third party making the
payment, its creditworthiness and genuineness of the transaction.
Whilst it is true that the assessee cannot be called upon to adduce
conclusive proof on all these three questions, it is nonetheless
legitimate expectation of the process that he would bring in some
proof so as to discharge the initial burden placed on him. Since
Section 68 itself declares that the credited sum would have to be
included in the income of the assessee in the absence of
explanation, or in the event of explanation being not satisfactory, it
naturally follows that the material submitted by the assessee with
his explanation must itself be wholesome or not untrue. It is only
when the explanation and the material offered by the assessee at
this stage passes this muster that the initial onus placed on him
would shift leaving it to the AO to start inquiring into the affairs of
the third party.

40. The CIT (Appeals), as also the ITAT, in the case at hand, in our
view, unjustifiably criticized the AO for not having confronted the
assessee with the facts regarding return of some of the summons
under Section 131 or not having given opportunity for the identity
of all the share applicants to be properly established. The order
sheet entries taken note of in the order of CIT (Appeals) seem to
indicate otherwise. The order of CIT (Appeals), which was
confirmed by ITAT in the second appeal, does not demonstrate as
to on the basis of which material it had been concluded that the
genuineness of the transactions had been duly established. There is
virtually no discussion in the said orders on such score, except for
vague description of the material submitted by the assessee at the
appellate stage. Whilst it does appear that the time given to the
assessee for proving the identity of the third party was too short,
and further that it is probably not always possible for the assessee
placed in such situation to be able to enforce the physical
attendance of such third party (who, in the case of share applicants
vis-à-vis a company, would be individuals at large and may not be
even in direct or personal contact), the curtains on such exercise at
verification may not be drawn and adverse inferences reached only
37 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.

41. We are inclined to agree with the CIT (Appeals), and
consequently with ITAT, to the extent of their conclusion that the
assessee herein had come up with some proof of identity of some of
the entries in question. But, from this inference, or from the fact
that the transactions were through banking channels, it does not
necessarily follow that satisfaction as to the creditworthiness of the
parties or the genuineness of the transactions in question would
also have been established.

42. The AO here may have failed to discharge his obligation to
conduct a proper inquiry to take the matter to logical conclusion.
But CIT (Appeals), having noticed want of proper inquiry, could
not have closed the chapter simply by allowing the appeal and
deleting the additions made. It was also the obligation of the first
appellate authority, as indeed of ITAT, to have ensured that
effective inquiry was carried out, particularly in the face of the
allegations of the Revenue that the account statements reveal a
uniform pattern of cash deposits of equal amounts in the respective
accounts preceding the transactions in question. This necessitated a
detailed scrutiny of the material submitted by the assessee in
response to the notice under Section 148 issued by the AO, as also
the material submitted at the stage of appeals, if deemed proper by
way of making or causing to be made a “further inquiry” in
exercise of the power under Section 250(4). This approach not
having been adopted, the impugned order of ITAT, and
consequently that of CIT (Appeals), cannot be approved or upheld.

43. In the result, the questions of law stand answered in favour of
the Revenue though with a direction that the matter of assessment
arising out of notice under Section 148 Income Tax Act issued on
18.04.2007 for AY 2004-05 in respect of the assessee would stand
remitted to the CIT (Appeals) for fresh consideration/adjudication
in accordance with law.

44. In above view, the contentions of the assessee respecting the
validity of the assessment, as preserved for consideration by this
court by order dated 29.08.2014 in ITAT No. 289/2014, would also
be examined by the CIT (Appeals). Given the fact that such
objections have a bearing on the issue of jurisdiction, consideration
of such contentions of the assessee must precede the scrutiny of the
questioned credit entries from the perspective of Section 68.
38
M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 45. The appeal is disposed of in above terms.”

4.1. The aforesaid order deal with unexplained credit under section 68 of the Income Tax Act, and with respect to addition on account of commission paid on entry taken from entry provider. However, the issue before us is not with respect to section 68 rather it is with respect to section 37 of the Act and compensation paid to Akshata. In the present appeal, the JVC is not in dispute, payment made to Akshata through banking channel is not in dispute, role of Akshata is also not in dispute, therefore, the facts of the case from Hon’ble Delhi High Court is altogether different and blindly cannot be applied/relied upon to the facts of the present appeal. Admittedly, a tripartite agreement was entered between the assessee Omkar & Vinayak and Akshata was entered into wherein it was agreed to combine all the SRA projects to the three parties. It is thus clear that the earlier JV agreement entered in to by the assessee with Akshata on 06.06.2010 was in force and both the parties agreed to jointly develop property which after a stage both the parties namely the assessee and Akshata decided to part with in
39 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 accordance with agreed terms between them vide cancellation agreement dated 13.03.2012, wherein Akshata decided to relinquish all its rights, titles, interest and entitlements under JV agreement dated 06.06.2010. The JV agreement dated 06.06.2010 and cancellation agreement dated 13.03.2012 are placed in paper book filed by the assessee. The assessee complied its part of JVA obligation in successfully obtaining LOI, the right, if any on the said project and the said agreement was later on amended by entering into a supplemental agreement on 31/03/2012, whereby the basic terms and conditions of the said JVA itself were amended. As per the amended agreement, the assessee and the Vinayak had effectively handed over the SRA projects to Omkar to be developed by the later exclusively at its own cost and its responsibility towards the tenants. The assessee made payment of Rs.24,21,00,000/-

on account of compensation to M/s Akshata for the purpose of getting Akshata out from the JVC. The Ld. Assessing Officer issued questionnaire/notices to the parties and also considered their reply and thereafter reached to a particular
40 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
5. The next ground raised by the Revenue is with respect to allowing the deduction of expenses incurred towards alternate accommodation to tenants of a SRA projects and other expenses amounting to Rs.6,71,20,591/-.

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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
35. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the Directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was
50 M/s Darshan Realtors Pvt. Ltd.
ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans.
36. In view of the above, we allow these appeals and set aside the impugned judgments of the High Court, the Tribunals and other authorities and remand the matter to the Tribunal for a fresh decision, in accordance with law and in the light of the observations made above.
37. We also make it clear that we are not setting aside the order of the Tribunal or other income-tax authorities in relation to the other points dealt with by these authorities, except the point of deduction of interest on the borrowed funds.”
5.8. What is required under section 37(1) of the Act is that whether the expenditure was incurred and is having nexus with the profits or business, are allowable deduction Saharanpur Electric Supply Co. Ltd. v. CIT, (1971) 82 ITR 405 (All). The Hon’ble Gujarat High Court in CIT v.

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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
ITA No.4009/Mum/2016 & 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.
Sd /- Sd/- (N.K. Pradhan) (Joginder Singh)
लेखा सद#य / ACCOUNTANT MEMBER या$यक सद#य / JUDICIAL MEMBER मब ुं ई Mumbai; *दनांक Dated : 26/09/2018 f{x~{tÜ? P.S / नजी स चव
56 M/s Darshan Realtors Pvt. Ltd. ITA No.4009/Mum/2016 & C. O. No.299/Mum/2017 आदे श क %$त’ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ/ / The Appellant
2. 0यथ/ / The Respondent.
3. आयकर आय2 ु त(अपील) / The CIT, Mumbai.
4. आयकर आय2 ु त / CIT(A)- , Mumbai
5. 4वभागीय त न ध, आयकर अपील(य अ धकरण, मब ुं ई / DR, ITAT, Mumbai
6. गाड” फाईल / Guard file. आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील
य अ धकरण, मब ुं ई / ITAT, Mumbai,

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