M/s. Sahara India Finance & Investment Ltd, New Delhi v. ACIT, New Delhi

CO 74/DEL/2009 | 1995-1996
Pronouncement Date: 30-03-2012 | Result: Partly Allowed

Appeal Details

RSA Number 7420123 RSA 2009
Bench Delhi
Appeal Number CO 74/DEL/2009
Duration Of Justice 2 year(s) 11 month(s) 9 day(s)
Appellant M/s. Sahara India Finance & Investment Ltd, New Delhi
Respondent ACIT, New Delhi
Appeal Type Cross Objection
Pronouncement Date 30-03-2012
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted H
Tribunal Order Date 30-03-2012
Date Of Final Hearing 22-02-2012
Next Hearing Date 22-02-2012
Assessment Year 1995-1996
Appeal Filed On 20-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHIA BEFORE SHRI U.B.S. BEDI JUDICIAL MEMBER AND SHRI K.D. RANJAN ACCOUNTANT MEMBER I.T. A. NO.1650/DEL/2008 ASSESSMENT YEAR : 1995-96 ASSTT. COMMISSIONER OF I.TAX M/S. SAHARA INDIA F INANCE & CENTRAL CIRCLE-6 NEW DELHI. VS. INVESTMENT CORPN. LTD. (FORMERLY KNOWN AS SAHARA INDIA HOUSING CORPN. LTD.) 1 KAPOORTHALA COMPLEX ALIGANJ LUCKNOW. C.O. NO.74/DEL/2009 ASSESSMENT YEAR : 1995-96 M/S. SAHARA INDIA FINANCE & ASSTT. COMMISSIONER O F I.TAX INVESTMENT LTD. (FORMERLY VS. CENTRAL C IRCLE-6 NEW DELHI. KNOWN AS SAHARA INDIA HOUSING CORPN. LTD.) 1 KAPOORTHALA COMPLEX ALIGANJ LUCKNOW. PAN/GIR NO.110-S. (APPELLANTS) (RESPONDE NTS) DEPARTMENT BY : MS. REENA S. PURI CIT-DR. ASSESSEE BY : SHRI J.J. MEHROTRA CA. O R D E R PER K.D. RANJAN ACCOUNTAT MEMBER: THE APPEAL BY THE REVENUE AND CROSS OBJECTION BY TH E ASSESSEE FOR ASSESSMENT YEAR 1995-96 ARISE OUT OF THE ORDER OF T HE COMMISSIONER OF 2 INCOME-TAX (APPEALS)-I NEW DELHI. THESE WERE HEAR D TOGETHER AND FOR THE SAKE OF CONVENIENCE ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER:- 1. THE ORDER OF THE CIT(A) IS NOT CORRECT IN LAW A ND FACTS. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLO WANCE OF RS.17 96 839/- MADE BY THE AO ON ACCOUNT OF EMPLOYE ES REMUNERATION AND BENEFITS. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE DEPRECI ATION OF RS.1 30 678/-. 4. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALLO W RENT OF THE BUILDINGS WHICH WERE USED FOR BUSINESS PURPOSES. 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE DISALLOWANCE OF RS.17 96 839/- MADE BY THE ASSESSING OFFICER ON ACC OUNT OF EMPLOYEES REMUNERATION AND BENEFITS. THE BRIEF FACTS OF THE CASE ARE THAT THE ORIGINAL ASSESSMENT UNDER SEC. 143(3) WAS MADE ON 12.03.1998 WHEREIN AN AMOUNT OF RS.17 96 839/- WAS DISALLOWED UNDER THE HEAD EX PENDITURE ON EMPLOYEES REMUNERATION AND BENEFITS. THE LEARNED CIT(A) VIDE ORDER DATED 12.06.2000 RESTORED THE MATTER BACK TO THE AS SESSING OFFICER WITH THE DIRECTION THAT A COPY OF MEMORANDUM OF UNDERSTANDIN G ENTERED INTO BETWEEN THE ASSESSEE WITH M/S. SAHARA INDIA HOUSING CORPORATION LTD. SHOULD BE OBTAINED AND THEREAFTER THE MATTER SHOULD BE DECIDED AFRESH. THE 3 REVENUE PREFERRED APPEAL BEFORE INCOME-TAX APPELLAT E TRIBUNAL AGAINST RESTORING OF MATTER TO THE FILE OF THE AO BY THE LE ARNED CIT(A). ON APPEAL ITAT LUCKNOW BENCH VIDE THEIR ORDER DATED 22 ND MARCH 2005 RESTORED THE MATTER BACK TO THE FILE OF THE CIT(A). 4. MEANWHILE THE AO COMPLETED SET ASIDE ASSESSMENT ON 23 RD JANUARY 2002. THE LEARNED CIT(A) PASSED THE ORDER DATED 14 TH FEBRUARY 2008 AS DIRECTED BY ITAT. THE LEARNED CIT(A) HOWEVER WHIL E DECIDING THE SET ASIDE APPEAL BY THE TRIBUNAL HAS TAKEN INTO ACCOUN T THE FACTS ARISING FROM MEMORANDUM OF UNDERSTANDING BETWEEN THE ASSESSEE AN D SAHARA INDIA HOUSING LTD. 5. THE ASSESSING OFFICER IN THE SET ASIDE ASSESSMEN T PROCEEDINGS OBTAINED THE COPY OF MEMORANDUM OF UNDERSTANDING EN TERED INTO BETWEEN THE ASSESSEE AND SAHARA INDIA HOUSING LTD. AS PER MEMORANDUM OF UNDERSTANDING DATED 21 ST MARCH 1994 THE ASSESSEE AGREED TO TRANSFER THE ENTIRE DEVELOPMENT PROJECT TO SAHARA INDIA HOUSING LTD. INCLUDING THE WORK DONE IN PROGRESS AND ALSO TO BE EXECUTED SUBSEQUEN TLY IN RESPECT OF WHICH ADVANCES HAVE BEEN MADE BY THE ASSESSEE AND WHICH A RE NOT IN FINAL STAGE IN PHASED MANNER BY 31 ST MARCH 1996. IT WAS MUTUALLY AGREED BETWEEN THE PARTIES THAT ALL THE ADMINISTRATIVE EXPENSES VIZ. S ALARIES RENT REPAIRS & MAINTENANCE TRAVELLING AND CONVEYANCE LEGAL AND P ROFESSIONAL CHARGES 4 EXPENSES ETC. INCURRED UPTO DATE BY THE ASSESSEE SH ALL NOT BE BORNE BY THE SECOND PARTY I.E. SAHARA INDIA HOUSING LTD. BUT ONL Y THE EXPENSES DIRECTLY RELATED TOWARDS THE DEVELOPMENT OF LAND AND ALSO VA RIOUS ADVANCE TRANSACTIONS MADE IN CASH THEREWITH SHALL BE TRANSF ERRED BY THE FIRST PARTY TO THE SECOND PARTY I.E. BY THE ASSESSEE TO SAHARA IND IA HOUSING LTD. AFTER THE DATE OF AGREEMENT NO PART OF EXPENSES INCURRED IN C ONNECTION WITH REMAINING DEVELOPMENT WORK ON THE PROJECT BY THE FIRST PARTY HAS TO BE CHARGED ON ACTUAL BASIS FROM THE SECOND PARTY. THE EXPENSES I NCURRED BY THE ASSESSEE DO NOT RELATE TO THE BUSINESS OF THE ASSESSEE AFTER THE DATE OF SAID MEMORANDUM OF UNDERSTANDING. THEREFORE THE AO REQ UIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE CLAIM FOR EXPENDITURE MADE BY THE ASSESSEE SHOULD NOT BE DISALLOWED. THE ASSESSEE IN RESPONSE TO THE REP LY SUBMITTED THAT THEY HAD TO CARRY ON DEVELOPMENT WORK AND HAND OVER TO M/S. SAHARA INDIA HOUSING LTD. BY 31 ST MARCH 1996. AS A RESULT THE ASSESSEE HAD TO KEE P EMPLOYEES TO GET THE WORK EXECUTED AND THEREFORE SALARY PAID TO THESE EMPLOYEES WAS FULLY ALLOWABLE AS BUSINESS DEDUCTION IN THE HANDS OF THE ASSESSEE. IT WAS ALSO SUBMITTED THAT EXPENDITURE INCURRED FOR THE PU RPOSE OF TRADE OF ASSESSEE HAD BEEN INCURRED FOR COMMERCIAL EXPEDIENCY. SINCE AS PER THE TERMS OF MOU THE ASSESSEE WAS TO HAND OVER THE ENTIRE PROJEC T TO SAHARA INDIA HOUSING LTD. BY 31 ST MARCH 1996 THE EXPENDITURE INCURRED UPTO THAT PE RIOD 5 BY THE ASSESSEE WAS AN EXPENDITURE WHICH WAS BENEFI TED BY THE ASSESSEE INASMUCH AS THE ASSESSEE HAS TO SAVE AND REALIZE TH E COST OF DEVELOPMENT WHICH IT HAD INCURRED UPTO THE DATE OF ENTERING THE MOU OTHERWISE THE SAME COULD NOT HAVE BEEN REALIZED BY THE ASSESSEE. 6. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE AO ON THE GROUND THAT THE ASSESSEE HAD TRIED TO DISTINGUISH THE EXPR ESSION FULLY AND EXCLUSIVELY DOES NOT MEAN NECESSARILY WHICH LEADS TO THE INFERENCE THAT THE EXPENDITURE WAS NOT NECESSARY FOR THE PURPOSE OF AS SESSEES BUSINESS. SECONDLY THE ASSESSEE HAD ALSO INDIRECTLY ADMITTED THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OTHER THAN THE ASSESSEES OWN BUSINESS ACTIVITY AFTER THE DATE OF EXECUTION OF MEMORANDUM OF UNDERSTANDIN G. BY INCURRING THOSE EXPENSES THE ASSESSEES ARGUMENT THAT IT HAD SAVED ITSELF FROM OTHER LOSSES WAS TOTALLY ILLOGICAL BECAUSE THE PROJECT HAS BEEN TRANSFERRED ON ACTUAL COST BASIS. IN THE REAL ESTATE BUSINESS THE TIME FACTOR IS VERY IMPORTANT. THE COST OF THE LAND INCREASES DAY-TO-DAY AND THEREFORE THE THEORY OF LOSS WAS FOUND TO BE BASELESS. THE AO FURTHER NOTED THAT THE EXPE NSES UNDER THIS HEAD HAD BEEN CLAIMED MAINLY FOR THE EMPLOYEES AT THE SITE O F LONAWALA WHICH HAD BEEN WORKING FOR DEVELOPMENT OF PLOT OF LAND AND HO USING ACTIVITIES FOR THE BENEFIT OF SAHARA INDIA HOUSING LTD. THE AO THEREF ORE DISALLOWED THE CLAIM OF THE ASSESSEE. 6 7. BEFORE THE CIT(A) THE ASSESSEE MADE SIMILAR ARGU MENTS. THE LEARNED CIT(A) ON CONSIDERATION OF THE TERMS OF MEMORANDUM OF UNDERSTANDING OBSERVED THAT THE AO HAD RELIED ON CLAUSES (III) ( IV) (V) & (VI) OF THE MOU TO ARRIVE AT HIS CONCLUSION. REST OF OTHER CLAUSES I.E. (I) (II) (VII) (VIII) (IX) & (X) WERE TOTALLY IGNORED BY THE AO AND HAD DRAWN CONCLUSION ON THE BASIS OF POINTS WHICH HE HAS MENTIONED IN THE ASSESSMENT ORDER. CLAUSE (II) CLEARLY STATES THAT THE SECOND PARTY AGREES TO TAKE THE ENTIRE DEVELOPMENT WORK PROJECT INCLUDING THE WORK DONE IN PROGRESS A ND ALSO THE TRANSACTIONS OF ADVANCES ETC. WHICH ARE NOT IN A FINAL STAGE FRO M THE FIRST PARTY IN A PHASED MANNER BY 31 ST MARCH 1996. FURTHER CLAUSE (VII) OF MOU ALSO STA TED THAT THE ASSESSEE SHALL PROVIDE ALL NECESSARY ASSISTANCE /INFORMATION TO THE SECOND PARTY AS REGARDS THE WORK DONE WORK IN PROGRESS AN D WORKS TO BE EXECUTED IN RESPECT OF THE SAID PROJECT TO THE SECOND PARTY. SINCE THE PROJECT WAS HANDED OVER IN PHASED MANNER DURING THE PERIOD OF T WO YEARS THE LEARNED CIT(A) CAME TO THE CONCLUSION THAT THE AO WAS NOT J USTIFIED IN DISALLOWING THE CLAIM. THE LEARNED CIT(A) ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EASTERN INVEST MENT LTD. VS. CIT 20 ITR 1 (SC); J.R. PATEL & SONS PVT. LTD. VS. CIT 69 ITR 782; ALUMINIUM CORPORATION OF INDIA LTD. VS. CIT 86 ITR 11 AND DE CISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF INDIAN STEEL & W IRE PRODUCTS LTD. VS. 7 CIT 69 ITR 379. THE LEARNED CIT(A) FINALLY CONCLU DED THAT THE OBSERVATION OF THE AO WAS NOT IN CONFORMITY WITH THE MEMORANDUM OF UNDERSTANDING AND THE FACTS OF THE CASE. THE EXPENDITURE MADE BY THE ASSESSEE WAS THE BUSINESS EXIGENCY AND DIRECTLY RELATED TO THE TRANS FER OF PROJECT BROUGHT OVER IN TWO YEARS. THEREFORE THE ADDITION MADE BY THE AO WAS DELETED. 8. BEFORE US THE LEARNED CIT-DR SUBMITTED THAT THE LEARNED CIT(A) HAS PASSED A CONSOLIDATED ORDER IN RESPECT OF SET ASIDE PROCEEDINGS TO THE CIT(A) BY ITAT AND ASSESSMENT FRAMED BY THE AO AS PER DIRE CTIONS OF THE CIT(A) IN SETTING ASIDE THE ORIGINAL ASSESSMENT. SHE FURT HER SUBMITTED THAT MEMORANDUM OF UNDERSTANDING WAS ENTERED INTO BETWEE N THE ASSESSEE AND SAHARA INDIA HOUSING LTD. ON 21 ST MARCH 1994 WITH EFFECT FROM 1.04.1994. AS PER CLAUSE (II) OF MEMORANDUM OF UNDERSTANDING M /S. SAHARA INDIA HOUSING LTD. AGREED TO TAKE OVER THE ENTIRE DEVELOP MENT WORK INCLUDING THE WORK DONE IN PROGRESS AND ALSO TRANSACTIONS AND AD VANCES WHICH WERE NOT IN FINAL STAGE FROM THE ASSESSEE IN A PHASED MANNER BY 31 ST MARCH 1996. HOWEVER AS PER CLAUSE (IV) OF MEMORANDUM OF UNDERS TANDING THE UNCOMPLETED WORK AND TRANSACTION IN RESPECT TO THE DEVELOPMENT WORK SHALL BE MADE IN THE NAME OF THE SECOND PARTY (M/S. SAHAR A INDIA HOUSING LTD.) AS FAR AS POSSIBLE FOR AND ON BEHALF OF THE SECOND PAR TY (SAHARA INDIA HOUSING LTD.) BY FIRST PARTY (THE ASSESSEE) AND SHALL BE DI RECTLY DEBITED TO THE ACCOUNT 8 OF THE SECOND PARTY BY THE FIRST PARTY. AS PER CLA USE (V) THE TRANSFER OF ENTIRE DEVELOPMENT PROJECT BY FIRST PARTY TO THE SECOND PA RTY WAS TO BE MADE ON ACTUALS FOR WHICH DETAILED STATEMENT SHALL BE SUBMI TTED BY THE FIRST PARTY TO THE SECOND PARTY. SHE THEREFORE SUBMITTED THAT TH E EXPENDITURE AFTER 1.04.1994 IN RELATION TO EMPLOYEES` REMUNERATION ET C. WAS TO BE BORNE BY M/S. SAHARA INDIA HOUSING LTD. AND NOT BY THE ASSES SEE. THE LEARNED CIT(A) HAS THEREFORE WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE PROJECT WAS TO BE HANDED OVER IN A PHASED MANNER BY 31 ST MARCH 1996. MOREOVER THE LEARNED CIT(A) HAD APPL IED THE PRINCIPLE OF COMMERCIAL EXPEDIENCY WHICH DOES NOT FLOW FROM THE MEMORANDUM OF UNDERSTANDING. THE EXPENDITURE INCURRED BY THE ASS ESSEE SHOULD NOT HAVE BEEN DEBITED IN THE ACCOUNTS AND AS PER THE MEMORAN DUM OF UNDERSTANDING SHOULD HAVE BEEN TRANSFERRED TO THE ACCOUNT OF SAHA RA INDIA HOUSING LTD. THEREFORE SHE PLEADED THAT THE AO HAD RIGHTLY DISA LLOWED THE CLAIM OF THE ASSESSEE. ON THE OTHER HAND THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT AS PER THE MEMORANDUM OF UNDERSTANDING THE PROJECT WAS TO BE TRANSFERRED TO SAHARA INDIA HOUSING LTD. IN A PHASED MANNER FRO M 1.4.1994 TO 31 ST MARCH 1996. THE PAYMENT OF SALARY ETC. TILL THE P ROJECT WAS TRANSFERRED WAS THE LIABILITY OF THE ASSESSEE AND ACCORDINGLY TILL THE PROJECT WAS TRANSFERRED THE SAME WAS TO BE BORNE BY THE ASSESSEE AND HAS TO BE ALLOWED IN THE HANDS 9 OF THE ASSESSEE. IT WAS ALSO CLARIFIED THAT THE AS SESSEE HAD RECEIVED RS.2.5 CRORES REFUND FROM M/S. SAHARA INDIA HOUSING LTD. THEREFORE IT CANNOT BE SAID THAT THE ENTIRE EXPENDITURE WAS INCURRED BY TH E ASSESSEE. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE MEMO RANDUM OF UNDERSTANDING CAREFULLY. THE TERMS AND CONDITIONS OF MEMORANDUM OF UNDERSTANDING ARE REPRODUCED AS UNDER:- (I) THAT THE FIRST PARTY AGREES TO TRANSFER THE EN TIRE DEVELOPMENT WORK PROJECT TO SAHARA INDIA HOUSING LT D INCLUDING THE WORK DONE IN PROGRESS AND ALSO TO BE EXECUTED SUBSEQUENTLY IN RESPECT OF WHICH ADVANCE HAS BEEN M ADE BY THE FIRST PARTY AND WHICH ARE NOT IN A FINAL STAGE IN A PHASED MANNER BY 31 ST MARCH 1996. (II) THAT THE SECOND PARTY AGREES TO TAKE THE ENTIR E DEVELOPMENT WORK PROJECT INCLUDING THE WORK DONE IN PROGRESS A ND ALSO THE TRANSACTIONS OF ADVANCES ETC. WHICH ARE NOT IN A FI NAL STAGE FROM THE FIRST PARTY IN A PHASED MANNER BY 31 ST MARCH 1996. (III) THAT IT HAS BEEN MUTUALLY AGREED UPON THAT AL L THE ADMINISTRATIVE EXPENSES VIZ. SALARIES RENT REPAI RS AND MAINTENANCE TRAVELLING AND CONVEYANCE LEGAL AND PROFESSIONAL CHARGES EXPENSES ETC. INCURRED UPTO D ATE BY FIRST PARTY SHALL NOT BE BORNE BY THE SECOND PARTY BUT ON LY THE EXPENSES DIRECTLY RELATED TOWARDS THE DEVELOPMENT O F LAND AND ALSO THE VARIOUS ADVANCES/TRANSACTIONS MADE IN CONN ECTION THEREWITH SHALL BE TRANSFERRED BY THE FIRST PARTY T O THE SECOND PARTY. (IV) THAT SUBSEQUENT TO THE DATE OF THIS MEMORANDUM OF UNDERSTANDING UNCOMPLETED WORK AND TRANSACTIONS IN RESPECT TO THE DEVELOPMENT PROJECT SHALL BE MADE IN THE NAM E OF THE SECOND PARTY AS FAR AS POSSIBLE FOR AND ON BEHALF O F THE SECOND 10 PARTY BY FIRST PARTY AND SHALL BE DIRECTLY DEBITED TO THE ACCOUNT OF THE SECOND PARTY BY THE FIRST PARTY. (V) THAT IT HAS BEEN MUTUALLY AGREED UPON THAT THE TRANSFER OF THE ENTIRE DEVELOPMENT PROJECT BY THE FIRST PARTY T O THE SECOND PARTY SHALL BE MADE ON ACTUALS FOR WHICH DETAILED S TATEMENT SHALL BE SUBMITTED BY THE FIRST PARTY TO THE SECOND PARTY. (VI) THAT THE SECOND PARTY AGREES TO PAY THE TOTAL CONSIDERATION IN RESPECT TO THE DEVELOPMENT WORK PROJECT TO THE F IRST PARTY LATEST BY 31 ST MARCH 1996. (VII) THAT THE FIRST PARTY SHALL PROVIDE ALL NECESS ARY ASSISTANCE/INFORMATION TO THE SECOND PARTY AS REGAR DS THE WORK DONE WORK IN PROGRESS AND WORKS TO BE EXECUTED IN RESPECT OF THE SAID PROJECT TO THE SECOND PARTY. (VIII) THAT THE FIRST PARTY HEREBY TRANSFERS ALL IT S RIGHTS TAKEN FROM THE LAND OWNERS THROUGH REVOCABLE POWER OF ATT ORNEY FOR THE PURPOSES OF DEVELOPMENT OF LANAWALA PROJECT TO WHICH NECESSARY CONSENT FROM ALL THE RESPECTIVE PARTIES S HALL BE TAKEN IN DUE COURSE. (IX) THAT BOTH THE PARTIES TO THE MEMORANDUM OF UND ERSTANDING AGREED TO COMPLY WITH ALL THE FORMALITIES IN RESPEC T OF TRANSFER OF PROJECT BY THE END OF 31 ST MARCH 1996. (X) THAT IN CASE OF ANY DISPUTE BETWEEN THE PARTIES THE MATTER SHALL BE REFERRED TO SHRI SUBRATA ROY SAHARA WHO SH ALL BE THE SOLE ARBITRATOR AND WHOSE DECISION SHALL BE FINAL A ND BINDING ON BOTH THE PARTIES. 10. THERE IS NO DISPUTE ABOUT THE FACT THAT AS PER CLAUSE (I) AND CLAUSE (II) OF MEMORANDUM OF UNDERSTANDING THAT THE HOUSING PRO JECT AT LONAWALA WAS TO BE TRANSFERRED IN PHASED MANNER BY 31 ST MARCH 1996. CLAUSE (III) OF MEMORANDUM OF UNDERSTANDING STATES THAT ALL THE ADM INISTRATIVE EXPENSES 11 VIZ. SALARIES RENT REPAIRS & MAINTENANCE TRAVELL ING & CONVEYANCE LEGAL & PROFESSIONAL CHARGES ETC. INCURRED UPTO THE DATE BY THE FIRST PARTY I.E. ASSESSEE UPTO 31 ST MARCH 1994 SHALL BE BORNE BY THE SECOND PARTY I.E . SAHARA INDIA HOUSING LTD. BUT ONLY THE EXPENSES DIRECTLY RELATED TOWARDS THE DEVELOPMENT OF LAND AND ALSO THE VARIOUS ADVANCES/TRANSACTIONS MADE IN CONNECTION THEREWITH SHALL BE TRANSFERRED BY THE ASSESSEE TO S AHARA INDIA HOUSING LTD. FURTHER AS PER CLAUSE (IV) OF MOU SUBSEQUENT TO T HE DATE OF THIS MEMORANDUM OF UNDERSTANDING UNCOMPLETED WORK AND TR ANSACTIONS IN RESPECT TO THE DEVELOPMENT PROJECT SHALL BE MADE IN THE NAME OF THE SECOND PARTY AS FAR AS POSSIBLE FOR AND ON BEHALF OF SECON D PARTY BY THE FIRST PARTY. FROM PLAIN READING OF CLAUSE (IV) OF MOU IT IS CLEA R THAT SUBSEQUENT TO THE DATE OF MOU I.E. 21.03.1994 (SAY WITH EFFECT FROM 1 .4.1994) UNCOMPLETED WORK AND TRANSACTIONS IN RELATION TO DEVELOPMENT PR OJECT WAS TO BE CARRIED OUT BY THE FIRST PARTY ON BEHALF OF SECOND PARTY AN D THE EXPENDITURE RELATABLE THERETO WAS TO BE DEBITED TO THE ACCOUNT OF SECOND PARTY. NOWHERE IN THE MOU IT IS STIPULATED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE PERIOD OF TRANSFER OF THE PROJECT IN THE PHASED MAN NER SHOULD BE BORNE BY THE FIRST PARTY. SINCE THERE IS NO AMBIGUITY IN THE T ERMS AND CONDITIONS OF MOU IN OUR CONSIDERED OPINION THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF SALARIES ETC. RELATING TO THE EMPLOYEES WORKING AT THE SITE OF 12 LONAWALA PROJECT WAS TO BE RECOVERED FROM M/S. SAHA RA INDIA HOUSING LTD. IT IS IMPORTANT TO NOTE THAT NONE OF THE CLAUSES OF MOU STIPULATE THAT THE ASSESSEE WAS UNDER OBLIGATION TO INCUR SUCH EXPENDI TURE AFTER THE DATE OF MOU PARTICULARLY WITH EFFECT FROM 1.04.1994. THERE FORE THE PRINCIPLE OF COMMERCIAL EXPEDIENCY DOES NOT EMANATE FROM THE MOU . MERELY BECAUSE PROJECT WAS TO BE HANDED OVER IN A PHASED MANNER I N OUR CONSIDERED OPINION THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING TH E CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE ON SALARIES INCURRED ON BEHA LF OF SAHARA INDIA HOUSING LTD. AS DEDUCTION IN THE HANDS OF ASSESSEE. SINCE EXPENDITURE HAD BEEN INCURRED BY THE ASSESSEE ON BEHALF OF SAHARA I NDIA HOUSING LTD. AND THE SAME WAS TO BE DEBITED TO THE ACCOUNT OF SECOND PAR TY I.E. SAHARA INDIA HOUSING LTD. IN OUR CONSIDERED OPINION THE AO WAS JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. SINCE THE PRINCIPLE OF COMMERCIAL EXPEDIENCY IS NOT APPLICABLE IN THE CASE OF ASSESSEE WE HOLD THA T THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE RELIEF TO ASSESSEE ON THE PRINCIPLE OF COMMERCIAL EXPEDIENCY. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THAT OF THE ASSESSING OFFICER. 11. NEXT ISSUE FOR CONSIDERATION RELATES TO DELETIN G THE DEPRECIATION OF RS.1 30 678/-. THE FACTS OF THE CASE RELATING TO T HIS GROUND OF APPEAL ARE THAT THE ASSESSEE CLAIMED DEPRECIATION ON FIXED ASSETS W HICH WERE NOT IN USE IN 13 ASSESSEES OWN BUSINESS BUT WERE USED AT THE SITE O F DEVELOPMENT OF PROJECT AT LONAWALA. SINCE THE ASSETS WERE NOT USED FOR TH E BUSINESS OF THE ASSESSEE THE ASSESSING OFFICER DISALLOWED DEPRECIATION OF RS .1 30 678/-. 12. THE LEARNED CIT(A) HOWEVER OBSERVED THAT SINCE THE ADDITION UNDER THE HEAD EMPLOYEES REMUNERATION HAD BEEN DELETED BY HIM HE DIRECTED THE AO TO ALLOW DEPRECIATION AS PER PROVISIONS OF L AW. 13. BEFORE US THE LEARNED CIT-DR SUBMITTED THAT THE ISSUE RELATING TO DEPRECIATION ARISING OUT OF ORIGINAL ASSESSMENT WAS DISMISSED BY ITAT TREATING IT AS INFRUCTUOUS SINCE THE LEARNED CIT(A) SET ASIDE THE MATTER TO THE FILE OF THE AO. SHE FURTHER SUBMITTED THAT THE MAC HINERY WAS UTILIZED BY SAHARA INDIA HOUSING LTD. AND THEREFORE DEPRECIATI ON AFTER THE DATE OF MOU CANNOT BE ALLOWED. ON THE OTHER HAND THE LEAR NED AR OF THE ASSESSEE SUPPORTED THE ORDER OF THE CIT(A). 14. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE AO HAD DISALLOWED DEPRECIATION IN RESPECT OF ASSETS WHICH HAVE BEEN USED FOR HOUSING PROJECT AT LONAWALA. AS PER MEMORANDUM OF UNDERSTANDING THE LONAWALA PROJECT WAS UNDERTAKEN BY SAHARA INDIA HOU SING LTD. WITH EFFECT FROM 1.4.1994. THEREFORE THE ASSETS WERE FOR THE BUSINESS OF SAHARA INDIA HOUSING LTD. AND NOT FOR THE BUSINESS OF THE ASSESS EE. THEREFORE 14 DEPRECIATION IN RESPECT OF SUCH ASSETS CANNOT BE AL LOWED IN THE HANDS OF THE ASSESSEE. ACCORDINGLY WE ARE OF THE CONSIDERED OP INION THAT THE LEARNED CIT(A) IS NOT JUSTIFIED IN ALLOWING THE CLAIM FOR D EPRECIATION IN THE HANDS OF THE ASSESSEE. WE THEREFORE SET ASIDE THE ORDER O F THE CIT(A) AND RESTORE THE ORDER OF THE ASSESSING OFFICER IN RESPECT OF DEPREC IATION. 15. NEXT ISSUE FOR CONSIDERATION RELATES TO ALLOWIN G THE RENT OF THE BUILDING WHICH WAS USED FOR THE PURPOSE OF ASSESSEE S BUSINESS. THE FACTS OF THE CASE RELATING TO THIS GROUND ARE THAT THE AO IN THE ORIGINAL ASSESSMENT DISALLOWED RENT OF RS.4 58 975/- UNDER SEC. 40A(2)( B) OF THE ACT. THE LEARNED CIT(A) DELETED THE ADDITION. HOWEVER ON A PPEAL ITAT VIDE ORDER DATED 22 ND MARCH 2005 RESTORED THE ISSUE BACK TO THE FILE OF THE CIT(A) WITH THE DIRECTION TO DECIDE THE ISSUE AFRESH AFTER TAKI NG INTO CONSIDERATION THE TERMS AS CONTAINED IN MOU. FOR THE RELEVANT ASSESS MENT YEAR THE ASSESSEE PAID RENT IN RESPECT OF THE FOLLOWING PREMISES:- SAHARA INDIA BHAWAN LUCKNOW. RS.1 08 000/- S.V. ROAD GOREGAON RS.1 17 000/- AMBADEEP. NEW DELHI. RS.2 40 000/- LONAWALA RS. 66 225/- PUNE RS. 28 600/- AMBAVANI RS. 7 150/- ----------------- TOTAL RS.5 66 975/- ----------------- 15 THE ASSESSEE MADE PAYMENT OF RS.2 40 000/- IN RESPE CT OF AMBADEEP BUILDING NEW DELHI TO SAHARA INDIA OWNER OF THE PROPERTY. THE AMOUNT OF RS.1 17 000/- WAS MADE TO SAHARA INDIA HOUSING LTD. THE AO IN THE ORIGINAL ASSESSMENT OBSERVED THAT PAYMENT OF RENT B Y THE ASSESSEE FOR THE BUILDING USED BY SAHARA INDIA HOUSING CORPORATION L TD. COULD NOT BE SAID TO BE FOR ITS OWN BUSINESS PURPOSE. MOREOVER PAYMENT IN RESPECT OF BUILDING AT 7 TH FLOOR SAHARA INDIA BHAWAN AT S.V. ROAD GOREGAON AND AMBADEEP NEW DELHI LONAWALA PUNE & AMBAVANI FELL IN THE C ATEGORY OF PERSONS UNDER SEC. 40A(2)(B) OF THE ACT. SINCE THE ASSESSE E HAD HIS REGISTERED OFFICE AT LONAWALA AND WAS SHOWING INCOME FROM INTEREST. THEREFORE RENT CHARGES IN RESPECT OF BUILDING AT 7 TH FLOOR SAHARA INDIA BHAWAN WOULD BE ALLOWABLE AND THE BALANCE OF RS.4 58 975/- OUT OF EXPENSES UN DER THE HEAD RENT WOULD BE DISALLOWED. IT WAS SUBMITTED BY THE ASSES SEE BEFORE THE AO THAT ENTIRE PROJECT AT LONAWALA WAS TRANSFERRED TO SAHAR A INDIA HOUSING LTD. WHICH HAS THEREAFTER TAKEN A PROJECT OF DEVELOPMENT OF LAND THE ASSESSEE COMPANY HAD NOT PROVIDED ANY SERVICE TO SAHARA INDI A HOUSING LTD. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. 16. THE LEARNED CIT(A) HOWEVER OBSERVED THAT THE A O SHOULD HAVE MADE ASSESSMENT AS PER TERMS AND CONDITIONS OF MEMORANDU M OF UNDERSTANDING. ADDITION MADE BY THE AO WAS CONTRADICTORY TO HIS OW N OBSERVATIONS MADE 16 IN THE ASSESSMENT ORDER. THE LEARNED CIT(A) THEREF ORE DIRECTED TO ALLOW THE RENT OF THE BUILDINGS WHICH WERE USED FOR BUSINESS PURPOSE ON THE BASIS OF MEMORANDUM OF UNDERSTANDING. 17. BEFORE US THE LEARNED CIT-DR SUBMITTED THAT PR OVISION OF RENT DOES NOT FLOW FROM THE MO AND THE LEARNED CIT(A) HAS DEC IDED THE ISSUE CONTRADICTORY TO THE DIRECTIONS OF ITAT. THE LEARN ED CIT(A) HAS NOT CALLED FOR ANY REMAND REPORT FROM THE ASSESSING OFFICER. THEREFORE DIRECTIONS GIVEN BY HIM ARE VAGUE. ON THE OTHER HAND THE LEA RNED AR OF THE ASSESSEE HAS SUBMITTED THAT BUILDINGS HAVE BEEN USED FOR THE PURPOSE OF BUSINESS AND THEREFORE THE LEARNED CIT(A) IS JUSTIFIED IN ALLOW ING RENT PAID BY THE ASSESSEE. 18. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE ORDER OF THE CIT(A) THE FACTS ARE NOT CLEAR. AT THE SAME TIME THE LEARNED AR OF THE ASSESSEE ALSO COULD NOT ESTABLISH THE CORRECT FACTS IN RELATION TO THE PREMISES USED BY T HE ASSESSEE FOR THE PURPOSE OF BUSINESS. THERE IS NO DOUBT THAT THE RENT RELAT ING TO THE PROPERTY USED FOR THE LONAWALA PROJECT IS TO BE BORNE BY SAHARA INDIA HOUSING LTD. SINCE THE FULL FACTS OF THE BUILDING USED FOR WHICH RENT IS P AID BY THE ASSESSEE IS NOT COMING OUT OF THE ORDER OF THE CIT(A) OR THE AO WE FEEL IT PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R WITH THE DIRECTION TO 17 EXAMINE AS TO WHETHER THE PROPERTIES IN RESPECT OF WHICH RENT HAS BEEN PAID BY THE ASSESSEE HAVE BEEN UTILIZED FOR THE PURPOSE OF BUSINESS. THE AO WILL ALLOW THE RENT PAID BY THE ASSESSEE IN RESPECT OF T HE PREMISES USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES OWN B USINESS. NO RENT WILL BE ALLOWED IN CASE THE PREMISES ARE NOT USED BY THE AS SESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF ITS OWN BUSINESS. THE AO WILL DECIDE TH E ISSUE AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEAR D. HE WILL CALL FOR NECESSARY DETAILS IN RESPECT OF THE PROPERTIES AND THEIR USE FOR THE PURPOSE OF ASSESSEES BUSINESS. WE ORDER ACCORDINGLY. 19. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 20. NOW COMING TO THE CROSS OBJECTION FILED BY THE ASSESSEE THE GROUNDS OF CO ARE REPRODUCED AS UNDER:- 1.THAT THE LEARNED CIT(A) IS FULLY JUSTIFIED IN AL LOWING EMPLOYEES REMUNERATION AND BENEFITS ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW. 2. THAT THE LEARNED CIT(A) IS FULLY JUSTIFIED IN AL LOWING DEPRECIATION ON ASSETS OF RS.1 30 678/- TO THE RESP ONDENT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW. 3. THAT THE LEARNED CIT(A) IS FULLY JUSTIFIED IN AL LOWING EXPENDITURE UNDER THE HEAD RENT AS CLAIMED BY THE R ESPONDENT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW. 18 4. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN REJECTING THE CLAIM OF RS.41 147/- MADE BY THE RESP ONDENT ON ACCOUNT OF EXPENDITURE UNDER THE HEAD REPAIRS WHICH WAS DISALLOWED BY THE ASSESSING OFFICER RELYING ON HIS DISALLOWANCES MADE UNDER THE HEAD EMPLOYEES REMUNE RATION. 21. THE FIRST ISSUE RELATES TO ALLOWING DEPRECIATIO N OF RS.1 30 678/-. THIS GROUND OF APPEAL IS IN SUPPORT OF ORDER OF THE CIT( A). SINCE WE HAVE HELD THAT DEPRECIATION WILL NOT BE ALLOWABLE IN RESPECT OF ASSETS WHICH HAVE BEEN USED BY SAHARA INDIA HOUSING LTD. AT LONAWALA PROJE CT THIS GROUND OF CROSS OBJECTION IS TO BE DISMISSED. WE DISMISS THIS GROU ND ACCORDINGLY. 22. THE NEXT ISSUE FOR CONSIDERATION RELATES TO REN T CLAIMED BY THE ASSESSEE. WE HAVE SET ASIDE THIS ISSUE TO THE FILE OF THE AO. SINCE THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO NO OTHER DIRECTION IS NECESSARY ON THIS ISSUE. 23. THE LAST ISSUE FOR CONSIDERATION RELATES TO CON FIRMING THE ADDITION OF RS.41 147/- ON ACCOUNT OF EXPENDITURE UNDER THE HEA D REPAIRS. THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT THE EXPENSES WERE INCURRED AT PROJECT SITE OF LONAWALA. THE LEA RNED CIT(A) CONFIRMED THE DISALLOWANCE ON THE GROUND THAT THE ASSESSEE CO ULD NOT FILE ANY SATISFACTORY EVIDENCE FOR INCURRING OF SUCH EXPENDI TURE. THE LEARNED CIT(A) UPHELD THE DISALLOWANCE OF RS.41 147/-. 19 24. BEFORE US THE LEARNED AR OF THE ASSESSEE COULD NOT FILE ANY DETAILS IN RESPECT OF THE EXPENDITURE INCURRED AT RS.41 147/-. SINCE THE ASSESSEE HAD NOT FILED ANY DETAILS EITHER BEFORE THE CIT(A) OR B EFORE US WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LE ARNED CIT(A) CONFIRMING THE ADDITION. HENCE THIS GROUND OF CROSS OBJECTIO N IS DISMISSED. 25. IN THE RESULT THE CROSS OBJECTION FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 26. TO SUM UP THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 30 TH MARCH 2012. SD/- SD/- (U.B.S. BEDI) (K.D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30 TH MARCH 2012. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.