GIGAPLEX ESTATE P.LTD, MUMBAI v. DCIT OSD II CEN RG 7, MUMBAI

ITA 1133/MUM/2016 | 2008-2009
Pronouncement Date: 10-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 113319914 RSA 2016
Assessee PAN AAACB1508R
Bench Mumbai
Appeal Number ITA 1133/MUM/2016
Duration Of Justice 1 year(s) 8 month(s) 6 day(s)
Appellant GIGAPLEX ESTATE P.LTD, MUMBAI
Respondent DCIT OSD II CEN RG 7, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 10-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted SMC
Tribunal Order Date 10-11-2017
Assessment Year 2008-2009
Appeal Filed On 04-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH MUMBAI . . BEFORE SHRI C.N. PRASAD JM AND SHRI RAJESH KUMAR AM ITA NO. 1132 1133 / MUM/ 20 1 6 AND ITA NO.1137/MUM/2016 ( / ASSESSMENT YEAR: 2 0 07 - 08 2008 - 09 AND 2006 - 07 ) GIGAPLEX ESTATE PVT LTD. (FORMERLY KNOWN AS B RAHEJA BUILDERS PVT LTD) PLOT NO.C - 30 G BLOCK OPP SIDBI BANK BANDRA KURLA COMPLEX BANDRA (E ST ) MUM BAI - 400051 / VS. DY.COMMISSIONER OF INCOME TAX OSD - II CENTRAL RANGE - 7 AAYAKAR B H AVAN M K ROAD MUMBAI - 400020 ( / APPELLANT) : ( / RESPONDENT ) ./ PAN : A A A CB1508R ( / APPELLANT) : ( / RESPO NDENT ) / ASSESSEE BY : SHRI A RVIND SONDE / REVENUE BY : SHRI ALOK JOSHI / DATE OF HEARING : 03.10 . 2017 / DATE OF PRONOUNCEMENT : 10. 11 . 201 7 / O R D E R PER RAJESH KUMAR A . M: THESE T HREE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 26.11.2015 PASSED BY THE LD. PCIT - 52 FOR THE ASSESSMENT YEARS 2 ITA NO. 1132 AND 1133 /MUM/201 6 2007 - 08 2008 - 09 AND 2006 - 07 RESPECTIVELY . FOR THE SAKE OF CONVENIENCE THESE APPEALS WERE CLUBBED TOGETHER HEA RD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. FIRST WE WILL TAKE UP THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 200 6 - 0 7 WHEREIN FOLLOWING GROUNDS OF APPEAL HAVE BEEN TAKEN: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE GIGAPLEX ESTATE PVT LTD ('THE APPELLANT') RESPECTFULLY SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 52 MUMBAI (' PCIT ') HAS IN HIS ORDER UNDER SECTION 250 OF THE INCOME - TAX ACT 1961 ('THE ACT') ERRED ON THE FOLLOWING GROUNDS: 1. IN UPHOLDING THAT INITIATION OF REASSESSMENTS PROCEEDINGS UNDER SECTION 147 OF THE ACT ON THE BASIS THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT IS VALID AND PROPER IN LAW. 2. IN UPHOLDING THAT THE AMOUNT PAYABLE BY THE APPELLANT TO M/S METALS LTD ('OM') AND WELLWISHER CONSTRUCTION AND FINANCE PVT LTD ('WW') AMOUNTING TO RS. 100.80 CRORES REFLECTED IN ITS BOOKS OF ACCOUNTS UNDER THE HEAD 'INVENTORIES' IS A NON - BUSINESS EXPENDITURE. 3. IN UPHOLDING THE DISALLOWANCE OF INTEREST EXPENSE ATTRIBUTAB LE TO THE MONIES BORROWED FOR FINANCING THE PAYMENTS TO OM AND WW AND REDUCING SUCH INTEREST FROM THE VALUE OF 'INVENTORIES'. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED WITH THE OBJECTIVES OF UNDERTAKING CONSTRUCTION AND DEVEL OPMENT OF RESIDENTIAL AND COMMERCIAL PROJECTS. THE ASSESSEE IS PRESENTLY DEVELOPING AN IT SEZ AT AIROLI NAVI MUMBAI. THE ASSESSEE FILED THE RETURN OF INCOME ON 23.11.2006 DECLARING A TOTAL INCOME OF RS. 2 95 820/ - .THE ASSESSMENT 3 ITA NO. 1132 AND 1133 /MUM/201 6 WAS FRAMED U/S 143(3) OF T HE ACT VIDE ORDER DATED 22.12.2008 BY THE DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE - 29 MUMBAI ACCEPTING THE RETURN ED INCOME. THEREAFTER CASE OF THE ASSESSEE WAS RE - OPENED BY THE ASSESSING OFFICER (HEREINAFTER CALLED AO) AFTER FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR ON THE BASIS OF ASSESSMENT ORDER PASSED IN THE CASE OF M/S OM METALS LTD (HEREINAFTER CALLED OM ) WHO HAPPENED TO BE A JOINT VENTURE PARTNER BY ISSUING NOTICE U/S 148 OF THE ACT DATED 28.05.2012. IN REPLY TO THE SAID NOTICE THE ASSESSEE FILED RETURN OF INCOME AT AN INCOME OF RS. 8 83 666/ - AND ALSO REQUESTED THE AO TO SUPPLY THE REASONS RECORDED U/S 148 FOR RE - OPENING THE ASSESSMENT WHICH WERE SUPPLIED VIDE LETTER DATED 13.12.2012 PURPORTING THAT THE INCOME HAS ESCAPED ASSESSME NT OWING TO ARRANGEMENT BETWEEN OM . AND M/S WELL WISHER CONSTRUCTION AND FINANCE PVT. LTD (HEREINAFTER CALLED WW) WHICH WAS A SHAM AND NON GENUINE ARRANGEMENT. THE ASSESSEE WAS A JOINT VENTURE PARTNER WITH THESE TWO COMPANIES AND HAD APPLIED FOR ALLOTMENT OF 100 ACRE S OF LAND AT AIROLI NAVI MUMBAI TO MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION(HEREINAFTER CALLED AS MIDC). THE SAID AUTHORITY MIDC HAS ALLOTTED 50 ACRES OF LAND FOR A CONSIDERATION OF RS.50 58 62 500/ - . AFTER ALLOTMENT THE ASSESSEE BOUGHT T HE INTEREST OF OM . AND WW IN THE SAID LAND WITH THE PREVIOUS SANCTION AND PERMISSION OF 4 ITA NO. 1132 AND 1133 /MUM/201 6 MIDC FOR RS. 100 80 00 000/ - FROM BOTH THE PARTIES IN EQUAL PROPORTION. THE SAID PAYMENT WAS MADE BY THE ASSESSEE PARTLY OUT OF OWN FUNDS AND PARTLY OUT OF BORROWED FU NDS. THE OBJECTION S RAISED BY THE ASSESSEE AGAINST THE RE - OPENING OF ASSESSMENT WERE REJECTED AND DISMISSED AND ULTIMATELY THE RE - ASSESSMENT WAS FRAMED U/S 143(3) R.W.S. 147 OF THE ACT ON 5.3.2013 BY REDUCING RS. 100.80 CR FROM INVENTORIES BY DESCRIBING TH E TRANSACTION AS SHAM AND NON GENUINE AND ALSO DISALLOWING INTEREST ON MONEY BORROWED TO MAKE PAYMENT TO THE ABOVE PARTIES FOR RELINQUISHMENT OF THEIR INTEREST IN THE SAID PIECE OF LAND. 4. THE ISSUE RAISED IN GROUND NO . 1 IS AGAINST UPHOLDING THE RE - OPEN ING OF ASSESSMENT U/S 147 OF THE ACT BY PCIT ON THE GROUND THAT NO INCOME HAS ESCAPED ASSESSMENT. 4.1. THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT VIDE ORDER DATED 22.12. 2008 WAS RE - OPENED BY ISSUING NOTICE U/S 148 OF THE ACT ON 28.05.2012 RECORDING THE R EASONS WHICH ARE EXTRACTED BELOW: - THE REASONS RECORDED BY THE AO READ AS UNDER: 'FROM THE PERUSAL OF RECORDS IT IS FOUND THAT THE ASSESSEE COMPANY HAS 'INCRE ASE IN STOCK' IN ITS PROFIT & LOSS ACCOUNT AT RS.152 79 93 507J - AND HAS CARRIED FOR WARD THE SA ME AS 'INVENTORIES' IN ITS BALANCE SHEET. DURING THE COURSE OF ASSESS MENT PROCEEDING VIDE LETTER DATED 31.05.2010 THE ASSESSEE COMPANY HAS GIVEN DETAILS OF S. CREDITORS SHOWING 'PAYABLE TO OM METALS' AT RS.46 87 50 00 0/ - AND 'PA YABLE TO WELLWISHER CONSTRU CTION & FINANCE PVT. LTD.' AT RS.46 87 50 000 / - . 5 ITA NO. 1132 AND 1133 /MUM/201 6 SUBSEQUENTLY CERTAIN INFORMATION WAS CALLED FOR FROM THE ASSESSEE COMPANY VIDE LETTER DATED 19.05.2010 IN REPLY TO WHICH THE ASSESSEE COMPANY VIDE LETTER DATED 18.10.2008 THE ASSESSEE SUBMITTED THE LEDG ER ACCOUNT OF OM METALS AND WELL WISHER CONSTRUCTION AND FINANCE PVT LTD WHICH IS REPRODUCED AS UNDER : WELL WISHER CONSTRUCTION & FINANCE PVT LTD LEDGER ACCOUNT 01.04.2005 TO 31.03.2006 DEBIT CREDIT 19 - 09 - 2005 TO VIJAYA BANK PAYMENT 3 00 00 000 12 - 12 - 2005 TO SCB PAYMENT 40 00 000 02 - 01 - 2006 TO SCB PAYMENT 12 50 000 31 - 03 - 2006 TO PAYABLE TO WELL WISHER CONSTRUCTION AND FINANCE LTD JOURNAL 46 87 50 000 50 40 00 000 50 40 00 000 50 40 00 000 50 40 00 000 WELL WISH ER CONSTRUCTION & FINANCE PVT LTD LEDGER ACCOUNT 01.04.2005 TO 31.03.2006 DEBIT CREDIT 10 - 12 - 2005 TO SCB PAYMENT 40 00 000 2 - 1 - 200 6 TO SCB PAYMENT 3 12 50 000 31 - 03 - 2006 TO PAYABLE TO PM METALS LTD JOURNAL 46 87 50 000 50 40 00 000 50 40 00 000 50 40 00 000 50 40 00 000 6 ITA NO. 1132 AND 1133 /MUM/201 6 CHIEF EXECUTIVE OFFICER LEDGER ACCOUNT 01.04.2005 TO 31.03.2006 DEBIT CREDIT 12 - 12 - 2005 TO SCB PAYMENT 25 29 31 300 24 - 3 - 2006 TO SCB PAYMENT 25 29 31 200 BY CLOSING BALANC E 50 58 62 500 50 58 62 500 50 58 62 500 50 58 62 500 THUS THE ASSES SE COMPANY HAS DEBITED ITS PROFIT & LOSS ACCOUNT ON THESE ACCOUNTS TOTALING TO RS.151 38 62 50 0/ - . (50 40 00 000 + 50 40 00 000 + 50 58 62 500) AND HAS CARRIED TH IS VALUE TO THE BALANCE SHEET AS 'INVENTORIES'. THE ASSESSMENT OF OM . FOR A Y 2008 - 09 WAS COMPLETED IN DEC. 2010 BY THE JURISDICTIONAL A O AT J AIPUR WHICH WAS SUBSEQUENTLY FORWARDED TO THIS OFFICE. THE DETAILS ANNEXED WITH THIS ASSESSMENT ORDER BRINGS VA RIOUS GLARING AND SHAME TRANSACTION ENTERED BETWEEN THE ASSESSEE B. RAHEJA BUILDERS PVT LTD WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND OM . I . M / S. B. RAHEJA BUILDERS PVI. LTD. APPLIED TO MIDC FOR 50 ACRES OF PLOT AT AIROLI NAVI MUMBAI FOR DEVELOP ING IT PARK ON 14/2/2005. II . SUBSEQUENTLY ON 16/8/2005 A JOINT VENTURE AGREEMENT WAS ENTERED BETWEEN B. RAHEJA BUILDERS PVT. LTD WELLWISHER CONSTRUCTION & FINANCE PVT. A ND OM AND THEY MADE AN APPLICATION TO MIDC ON 18/8/2005 (THIS APPLICATION DATED 1 8/8/2005 HAS NOT BEEN SUBMITTED BY OM METALS WHEN CALLED BY THE ASSESSING OFFICER.) III . SUBSEQUENTLY ONE MORE APPLICATION WAS MADE TO MIDC ON 09.09.2005 FOR 100 ACRES OF LAND AT AIROLI PURPORTED TO MADE JOINTLY BY ALL THE THREE PARTIES B UT THE PROJECT THAT HIGHLIGHTS THEIR CAPABILITY AS BUILDERS/DEVELOPER FINDS MENTION OF PROJECTS DEVELOPED BY B. RAHEJA GROUP ONLY. IV . MIDC VIDE LETTER DATED 14.11.2005 HAS OFFERED 50 ACRES OF LAND. 7 ITA NO. 1132 AND 1133 /MUM/201 6 V. AN UNREGISTERED AGREEMENT WAS ENTERED BETWEEN B. RAHEJA BUILDER S PVT. LTD. W ELL WI SHER CONSTRUCTION & FINANCE PVT. LTD. AND OM . ON OB.12.2005 WHICH MENTIONS RELINQUISHMENT OF RIGHTS OF WELLWISHE R CONSTRUCTION & FINANCE PVT. LTD. AND OM . IN THIS AIROLI PLOT IN FAVOUR OF B. RAHEJA BUILDERS PVT. LTD UPON CERTAIN TERMS A ND CONDITIONS. VI . THE ENTIRE PAYMENT OF RS.50 5B 62 500/ - TO MIDC FOR LEASE OF THIS PLOT OF LA ND HAS BEEN MADE BY B. RAHEJA BUILDERS PVT. LTD. IN LIGHT OF THE ABOVE DISCUSSED FACTS IT CLEARLY EMERGES THAT ONLY B. RAHE JA BUILDERS PVT LID IS THE ONLY E NTITY INTERESTED IN DEVELOPING THE IT PARK AT AIROLI. TH E OTHER TWO ENTITIES VIZ. WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND OM METAL S . LTD. DID NOT CONTRIBUTE D F OR THE ABOVE TRANSACTION AND THE ENTIRE ARRANGEMENT MAD E APPEARS SHAM IN LIGHT OF THE F OLLOWING FACTS: I . A PAYMENT OF RS.3 00 00 000 HAS BEEN MADE TO WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. ON 19.0 8 .2005 JUST AFTER ENTERING INTO THE JOINT VENTURE AGREEMENT MUCH EARLIER TO ALLOTMENT OF LAND AT AIROLI BY MIDC. II . THE ASSESSEE COMPAN Y DID NOT MENTION THE REASONS FOR ATTRIBUTING THE AMOUN T OF RS.50 40 00 000/ - AGAINST WELLWISHER CONSTRUCTION & FINANCE PVT. LTD AND OM IN ITS SCHEDULE OR NOTES TO ACCOUNTS. III . THE ENTIRE PAYMENT TO MIDC WAS MADE BY B. RAHEJA BUILDERS PVT. LTD. THE A SSESSEE GROUP (B. RAHEJA GROUP) IS A RE - KNOWNED ENTITY IN REAL ESTA TE BUSINESS AND IS IN THIS FIELD SINCE LAST 65 YEARS. THIS GROUP HAS CONSTRUCTED AN D DEVELOPED VARIOUS LANDMARK PROJECTS IN MUMBAI NAVI MUMBAI REGION AND IN VARIOUS . OTHER STATES OF THE CO UNTRY . THE ASSESSEE COMPANY HAS INITIALLY ITSELF APPLIED FOR 5 0 ACRES OF LAND AT AIROLI AND ITS ASSOCIATED GROUP CONCERNS WERE HAVING SUFFICIENT CAPITA L TO FUND THIS ACQUISITION. THE TWO OTHER ENTITIES VIZ. WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND O M . ENTERED IN THE MIDST OF THIS PROCESS AND THAT SEEKED EXIT AFTER A SHORT PERIOD TILL WHICH NO LAND WAS ALLOTTED. THESE TWO ENTITIES NEITHER BROUGHT ANY EXPERTISE NOR BROUGHT ANY FUNDS TO THIS JOINT VENTURE TO JUSTIFY THIS HUGE 8 ITA NO. 1132 AND 1133 /MUM/201 6 PAYMENT TO THEM. THUS NO ROLE WAS PLAYED BY WELLWISHER CONSTRUCTION & FINANCE PVT LTD AND OM METALS LTD. AND THUS THE ENTIRE TRANSACTION IS SHAM AND CANNOT BE REGAR DED AS BUSINESS TRANSACTION AND THE CORRESPONDING EXPENDITURE CANNOT BE ALLOWED AS BEING INCURRED FOR THE PUR POSE OF BUSINESS. ACCORDINGLY THE CLAIM OF RS.50 40 00 000/ - EACH AGAINST WELLWISHER CONSTRUCTION & FINANCE PVT. L TD. AND OM . DEBITED IN PROFIT & LOSS ACCOUNT WHICH HAS BEEN SUBSEQUENTLY CAPITALIZED AS INVENTORIES IN BALANCE SHEET CANNOT BE ALLOWED AS BUSINESS EXPENDITURE SINCE NO GENUINE BUSINESS RELATION CAN BE ESTABLISHED. ALSO THE INTEREST EXPENSE ATTRIBUTABLE TO THIS NON - GENUINE PAYMENT MADE TO THESE TWO ENTITIES VIZ. WELLWISHER CONSTRUCTION & FINANCE PVT LTD (RS.3 53 50 000) AND OM . (RS3 52 50 000J - ) NEEDS TO BE DISALLOWED SINCE THE SAME HAS NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. THUS THE ASSESSEE COMPANY HAS NOT MADE CORRECT CLAIM REGARDING ITS EXPENSES CLAIMED AND DEBITED IN ITS BOOKS OF ACCOUNTS FOR THE CURRENT FINANCIAL YEAR UNDER CONSIDERATION. THEREFORE I HAVE REASONS TO BELIEVE THAT DUE TO OMISSION OR FAILURE ON THE PART OF THE ASSESSE E WITH REGARD TO INCORRECT CLAIM OF THESE EXPENSES BEING NON GENUINE INCOME CHARGEABLE TO TAX AMOUNTING TO RS.100 8 0 00 000 / - HAS ESCAPED ASSESSMENT FOR A. Y. 2006 - 07 WITHIN THE MEANING OF SECTION 147.' THE ASSESSEE FILED OBJECTIONS TO THE RE - OPENING OF ASSESSMENT WHICH WERE ALSO DISMISSED. 4.2. THE LD PCIT UPHELD THE RE - OPENING OF ASSESSMENT AFTER CONSIDERING AND RE JECTING THE SUBMISSIONS OF THE ASSESSEE AS HAS BEEN INCORPORATED IN PARA NO 8 OF THE APPELLATE ORDER BY OBSERVING AND HOLDING AS UNDER: - 8 . I HAVE CONSIDERED THE FACTS OF THE CASE SUBMISSIONS MADE BY THE LEARNED AR IN THIS REGARD. AS STATED ABOVE THE ASSESSEE COMPANY ENTERED INTO A JOINT VENTURE AGREEMENT WITH OM AND 9 ITA NO. 1132 AND 1133 /MUM/201 6 WELLWISHEER CONSTRUCTION AND FINANCE PVT LTD ON 16.8.2005 ALLEGEDLY FOR DEVELOPING AN IT PARK AT NAVI MUMBAI. THEY ACCORDINGLY APPLIED TO MIDC FOR ALLOTMENT OF A PLOT OF LAND ON 18/8/2 005. HOWEVER THE VERY NEXT DAY ON 19/8/2005 THIS AGREEMENT FELL APART AND THE ASSESSEE COMPANY OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. DECIDED TO PART WAYS AND THE ASSESSEE COMPANY PROPOSED TO GO AHEAD WITH THE PROJECT INDEPENDENTLY. ON THE SAME DATE I.E. ON 19/8/2005 THE ASSESSEE ALSO PAID AN UPFRONT AMOUNT OF RS.3 CRORES TO WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. IN LIEU OF THEIR PARTING WAYS. IT IS IMPORTANT TO MENTION OVER HERE THAT BY 19/8/2005 EVEN A PLOT OF LAND WAS NOT ALLOTT ED TO THE ASSESSEE COMPANY OR TO THE JOINT VENTURE AND THEREFORE ON 19/8/2005 IT COULD NOT HAVE BEEN CONCLUDED WHETHER THE JOINT VENTURE ';;~S ACTUALLY GOING TO BE ALLOTTED A PLOT OF LAND BY THE MIDC OR NOT. SUBSEQUENTLY ON 15/9/2005 MIDC OFFERED TO ALLOT A PLOT OF LAND FOR A SUM OF RS.50 CRORES WITH THE CONDITION THAT INITIAL PREMIUM OF RS.25.29 CRORES IS PAID 'WITHIN 30 DAYS OF THE ALLOTMENT. THEREAFTER THE ASSESSEE COMPANY PAID A SUM OF RS.25.29 CRORES TO MIDC ON 12/12/2005 WHICH WAS FOLLOWED BY FURTHER PAYMENTS MADE BY THE ASSESSEE TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND IN BETWEEN THERE WAS SIGNING OF SOME FORMAL AGREEMENTS BETWEEN THE COMPANIES TO DISSOLVE JOINT VENTURE ETC. IT IS RELEVANT TO MENTION OVER HERE THAT THE SO - CALLED JOINT VENTURE AGREEMENT HAD BEEN IN PLACE ONLY FOR A PERIOD OF THREE DAYS AND THE ASSESSEE PAID A WHOPPING AMOUNT OF RS.100.80 CRORES TO THE SO - CALLED JOINT VENTURE PARTNERS WHICH GIVES RISE TO SERIOUS ISSUES ABOUT GENUINENESS OF THE TRANSACTION. IT IS FURTHER RELEVANT TO MENTION OVER HERE THAT THE JOINT VENTURE PARTNERS DID NOT BRING IN EITHER ANY INVESTMENT OR CAPITAL OR TECHNICAL EXPERTISE TO THE JOINT VENTURE. IN FACT THE ASSESSEE COMPANY BELONGS TO RAH~JA GROUP OF CASES WHICH IS A QUITE WEL L - KNOWN BUILDER GROUP HAVING LONG EXPERIENCE ON CONSTRUCTION BUSINESS AND HAD ALSO DEVELOPED AN IT. PARK AT BANGALORE AND THEREFORE IT IS NOT THE CASE THAT THE ASSESSEE COMPANY LACKED SUCH EXPERTISE AND THEREFORE NEEDED HELP OF OTHER COMPANIES TO DO I T. FURTHER THE ENTIRE COST OF THE PLOT OF LAND ITSELF WAS ONLY RS.50 CRORES AND THEREFORE IT IS NOT UNDERSTANDABLE AS TO HOW AND WHY THE ASSESSEE PAID A WHOPPING AMOUNT OF RS.100.80 CRORES TO THE JOINT VENTURE PARTNERS ONLY FOR LENDING THEIR NAMES FO R A PERIOD OF THREE DAYS CONSIDERING THE OVERALL FACTS OF THE CASE THE 10 ITA NO. 1132 AND 1133 /MUM/201 6 WHOLE EXERCISE APPEARS TO BE COLOURABLE DEVICE EMPLOYED BY THE ASSESSEE WITH A VIEW TO AVOID PAYMENT OF TAXES. 9 . IT IS ALSO RELEVANT TO MENTION OVER HERE THAT THE ASSESSEE COMPANY IN A.Y. 2006 - 07 HAD SHOWN THE SUM OF RS.100.80 CRORES IN ITS ACCOUNTS IN THE FORM OF INVENTORIES AND NO SEPARATE ENTRY AS SUCH AS AMOUNT PAID TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. HAD BEEN MENTIONED IN THE ACCOUNTS. FOR CLARITY THE RE LEVANT ENTRIES MADE BY THE ASSESSEE IN ITS BOOKS FOR'A.Y:2006 - 07 ARE REPRODUCED AS UNDER : - PARTICULARS AMOUNT (IN RS.) DEFERRED TAX ASSETS 1 19 87 CURRENT ASSETS LOANS & ADVANCES INVENTORIES CASH & BANK BALANCE LOANS AND ADVANCES 1 52 79 93 50 7 5 54 8 2 2 96 95 0 1 1 LESS: CURRENT LIABILITIES (93 79 60 52 1) NET CURRENT ASSETS 60 02 82 81 FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE COMPANY DID NOT FOLLO W APPROPRIATE ACCOUNTING STANDARDS (AS - 2) WHILE MENTIONING VARIOUS FA CTS IN ITS BALANCE SHEET AND IF THE METHODOLOGY ADOPTED BY THE ASSESSEE WAS AT VARIANCE THEN IT SHOULD HAVE MENTIONED THOSE FACTS IN THE NOTES TO TH E ACCOUNTS. THOUGH THE ASSESSEE HAS CLAIMED THAT ITS DUTY WAS ONLY TO DISCLOSE PRIMARY FACTS ALONE AND OT HER FACTS HAVE TO BE UNEARTHED BY THE AO FROM THE ACCOUNTS ENCLOSED BY THE ASSESSEE WITH THE RETURN. HOWEVER FROM THE BASIC ACCOUNTS ENCLOSED BY THE ASSESSEE THE FACTS RELATING TO PAYMENT OF RS.100.80 CRORES TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PV T. LTD. ARE JUST NOT CLEAR AND THE A O BY A CURSORY LOOK AT THE BALANCE SHEET COULD NOT HAVE MADE OUT WHETHER ANY PAYMENT HAS BEEN MADE T O SUCH PARTIES. SINCE THE FIGURE OF CLOSING WORK - IN - PROGRESS IS BEING CARRIED FORWARD FROM A.Y. 2006 - 07 TO A.Y. 2007 - 0 8 THEREFORE THESE ISSUES WILL BE RELEVANT FOR THE PRESENT ASSESSMENT YEAR AS WELL. 10 . FURTHER THE TOTAL BREAK UP OF INVENTORY RECORDED BY THE ASSESSEE AS COST OF CONSTRUCTION IN THE BOOKS FOR AY - 2006 - 07 IS REPRODUCED AS UNDER : - 11 ITA NO. 1132 AND 1133 /MUM/201 6 S.NO. PARTICULARS A MOUNT % 1 COST OF LAND/PREMIUM FOR DEVELOPMENT RIGHTS 151 38 62 500 99.07 2 BROKERAGE COST 360 000 0.02 3 BORROWING COST 1 37 71 007 0.91 TOTAL 152 7993 507 100 FROM THE ABOVE TABLE ALSO I T IS CLEAR THAT NO SEPARATE ENTRY HA S BEEN PASSED IN RESPECT OF THE AMOUNT OF RS.100.80 CRORES PAID TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. THE ASSESSEE HAS INCLUDED THIS AMOUNT AS COST OF LAND/PREMIUM FOR DEVELOPMENT RIGHTS. HOWEVER THE PAYMENTS MADE TO OM . AND WELLWISHER CO NSTRUCTION & FINANCE PVT. LTD. IS NEITHER LAND COST NOR PREMIUM PAID FOR DEVELOPMENT RIGHTS. THUS THE ASSESSEE HAD NOT SHOWN THIS AMOUNT PROPERLY IN ITS BOOKS OF ACCOUNTS. IN FACT THE ABOVE FACT IS NOWHERE VISIBLE IN THE FINANCIAL STATEMENTS OR THE DETA ILS FILED BY THE ASSESSEE DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. IT IS IN THESE CIRCUMSTANCES THAT THE A O HELD THAT THE ASSESSEE HAD NOT DISCLOSED THE CORRECT AND MATERIAL FACTS ABOUT WRONG VALUATION OF ITS INVENTORY EITHER WHILE FILING THE RETURN OF INCOME OR DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND I TEND TO AGREE WITH THE LEARNED A O IN THIS REGARD.' SINCE ALL MATERIAL FACTS WERE APPARENTLY NOT DISCLOSED BY THE ASSESSEE EITHER WITH THE RETURN OF INCOME OR IN THE ORIGINAL ASSESSMENT PROCEEDINGS IT CANNOT CLAIM NOW THAT IT HAD DISCLOSED A L L MATERIAL FACTS. CONSEQUENTLY VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS OF THE PRESENT CASE. 1 1 . IN VIEW OF THE DISCUSSION IN THE FOREGOING PARAGRAPHS THE OPENING OF THE ASSESSMENT MADE BY THE AO U/S 147 OF T HE ACT BY ISSUE OF A NOTICE U/S 148 OF THE AT IS HELD TO BE VALID . CONSEQUENTLY THE GROUND TAKEN BY THE ASSESSEE IN THIS REGARD IS REJECTED. 4.3. THE LD AR VEHEMENTLY SUBMITTED BEFORE THE BENCH THAT THE NECESSARY CONDITIONS FOR RE - OPENING OF ASSESSMENT U/S 147 OF THE ACT HAVE NOT BEEN SATISFIED. THE ASSESSEE HAS DISCLOSED ALL THE MATERIALS FACTS CONCERNING THE SAID TRANSACTIONS IN THE ORIGINAL ASSESSMENT PROCEEDINGS 12 ITA NO. 1132 AND 1133 /MUM/201 6 AND THEREFORE RE - OPENING AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR IS NOT VALID UNLESS THE ESCAPEMENT OF INCOME HAS TAKEN PLACE BECAUSE OF NON DISCLOSURE OF MATERIALS FACTS BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS CONCLUDED U/S 143(3) OF THE ACT . THE LD AR SU BMITTED THAT THE ASSESSMENT IN THE CASE OF THE ASSESSEE WAS COMPLETED ON 22.12. 2008 WHICH WAS RE - OPENED ON THE BASIS OF ASSESSMENT ORDER OF M/S OM DATED 30.12.2010 WHICH WAS PASSED APPROXIMATELY TWO YEARS AFTER THE ASSESSMENT IN THE CASE OF THE ASSESSEE. THE ASSESSMENT ORDER OF M/S OM METAL LTD WAS NOT AVAILABLE WITH THE ASSESSEE NOR WITH THE AO DURING ORIGINAL ASSESSMENT AND IT WAS NOT POSSIBLE TO DISCLOSE SOMETHING WHICH WAS NOT IN THE KNOWLEDGE OF THE ASSESSEE. THE LD AR SUBMITTED THAT A FACT WHICH CAM E INTO BEING AFTER THE ASSESSMENT CAN NOT BE A MATERIALS FACT THAT OUGHT TO HAVE BEEN DISCLOSED BY THE ASSESSEE AND HE CITE D A SERIES OF DECISIONS IN SUPPORT NAMELY (I) P.R. MUKERJEE VS CIT 30 ITR 555 CAL (II) RAI SINGH DEV SINGH BIST AND OTHERS VS UOI AN D OTHERS77 ITR 802 DELHI (III) ITO VS CALCUTTA CHROMOTYPE PVT LTD 97 ITR 55 (CAL) (IV) CIT VS AKBARALI JUMMABHAI 198 ITR 69 GUJ (V) CIT VS SATYA NARAYAN LOHIA 204 ITR 894(CAL). THE LD AR CONTENDED THAT THE ASSESSMENT CAN ONLY BE RE - OPENED U/S 147 OF THE ACT AFTER LAPSE OF FOUR YEARS FROM THE END OF ASSESSMENT YEAR WHERE THE ASSESSMENT IS FRAMED U/S 143(3) OF THE ACT IF 13 ITA NO. 1132 AND 1133 /MUM/201 6 THE INCOME HAS ESCAPED ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACT S . THE LD AR SUBMITTED THAT THE ASS ESSEE HAS DISCLOSE D ALL THE FACTS IN THE ANNUAL ACCOUNTS OF THE ASSESSEE BY REFERRING TO PAGE 105 AND 109 OF THE PAPER BOOK AND ALSO DURING THE ASSESSMENT PROCEEDINGS . THE AMOUNT PAID FOR THE SURRENDER OF INTEREST IN THE LAND BY BOTH THE COMPANIES NAMELY OM AND WW FOR RS. 100.80 CR WAS DEBITED IN THE INVENTORIES AND THE PAYMENT OUTSTANDING TO EACH OF THESE PARTIES WAS SHOWN IN THE BALANCE SHEET AS ON 31.3.2006. EVEN DURING THE ORIGINAL ASSESSMENT THE AO RAISED SPECIFIC QUERY QUA THE INVENTORIES AND SUNDRY CREDITORS WHICH THE ASSESSEE SUPPLIED FURNISHING THE DETAILS OF INVENTORIES WHICH INCLUDED THE PAYMENT TO MIDC OM AND WW AND THE DETAILS OF SUNDRY CREDITORS WHICH INCLUDED THE AMOUNTS PAYABLE TO TWO PARTIES VIDE LETTER DATED 18.10.2008. NO FURTHER DET AILS WERE SOUGHT BY THE AO AFTER EXAMINATION AND VERIFICATION OF RECORDS AND WRITTEN SUBMISSIONS BY THE ASSESSEE . THE LD AR ALSO POINTED OUT THAT WHILE RECORDING REASONS AO STARTED THE REASONS BY USING THE LINE FROM THE PERUSAL OF RECORDS IT IS FOUND TH AT THE COMPANY HAS.. WHICH CLEARLY SHOW ED THAT AO RECORDED THE REASONS ON PERUSAL OF ASSESSMENT RECORDS AND DOCUMENTS AND INFORMATION AVAILABLE IN THE ASSESSMENT FILE WHICH PROVED THE FACT THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO 14 ITA NO. 1132 AND 1133 /MUM/201 6 DISCLOSE FULLY AND TRULY ALL MATERIAL AND PRIMARY FACTS. THE LD AR ALSO ARGUED THAT THE AO HAS NOWHERE ALLEGED THAT THERE HAS BEEN FAILURE ON THE PART OF ASSESSEE IN DISCLOSING THE FULLY AND TRULY ALL MATERIALS FACTS QUA THE TRANSACTIONS. THE LD AR SUBMITTED THAT SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIALS FACTS EITHER IN THE ACCOUNTS OR DURING THE ASSESSMENT PROCEEDINGS PROCEEDINGS U/S 147 OF THE ACT WERE INVALID AND SHOULD BE QUASHED. THE LD COUNSEL RELIED ON THE FOLLOWING DECIS IONS IN SUPPORT OF HIS ARGUMENTS (I) BHOR INDUSTRIES LTD ACIT 267 ITR 161 (BOM) (II) AJANTA PHARMA LTD VS ACIT 267ITR 200 (BOM) (III) HINDUSTAN LEVER LTD VS ACIT 268 ITR 232(BOM) (IV) TITANOR COMPONENTS LTD VS ACIT 20 TAXMAN.COM 805 (BOM). 4.4 THE THIR D LIMB OF ARGUMENT OF THE LD AR WAS THAT THE CIT HAS NOT RECORDED ANY SATISFACTION IN GRANTING PERMISSION FOR RE - OPENING A CONCLUDED ASSESSMENT IN TERMS OF PROVISIONS OF SECTION 151(1) OF THE ACT. THE SATISFACTION SHOULD NOT BE MECHANICAL BUT SHOULD BE REC ORDED AFTER DUE APPLICATION OF MIND. THE LD AR SUBMITTED THAT THE AO RECORDED THE REASONS ON 22.5.2012 AS FILED AT PAGE NO 115 & 116 OF PAPER BOOK. ON 23.5.2012 THE AO FORWARDED THE SAME TO THE ADDL. CIT WHO SANCTIONED THE SAME ON 25.5.2012 AND FORWARDED T HE SAME TO CIT(CENTRAL) MUMBAI ON THE SAME DAY I.E 25.5.2012 WHO ON THE SAME DAY ACCORDED APPROVAL IN A 15 ITA NO. 1132 AND 1133 /MUM/201 6 MECHANICAL MANNER BY NOTING I HAVE GONE THROUGH THE REASON AND AGREE WITH THE REASONS GIVEN BY THE AO.I CONSIDER IT A FIT CASE FOR INVOKING PROCEEDIN GS U/S 147. THE LD CIT GRANTED APPROVAL WITHIN 24 HOURS BY JUST MENTIONING HIS SATISFACTION IN ONE LINE. THE LD AR SUBMITTED THAT DUE DILIGENCE IS A PRE - REQUISITE FOR RE - OPENING AND MECHANICAL APPROVAL IS NOT VALID. THE LD AR RELIED ON A NUMBER OF DECISI ONS IN SUPPORT OF HIS ARGUMENTS NAMELY (I) ARJUN SINGH AND OTHER VS ASSISTANT DIRECTOR OF INCOME TAX (INVESTIGATION) & OTHERS 246 ITR 363(MP) (II)CIT VS S. GOYANKA LIME & CHEMICAL LTD 56TAXMAN.COM390(MP) (III) CIT VS S. GOYANKA LIME & CHEMICAL LTD 64TAXM AN.COM313(SC) (IV) GERMAN INDUSTRIES LTD VS DCIT 287 ITR 494 (BOM) . 4. 5 . THE LD D R WHILE HEAVILY RELIED ON THE ORDER OF LD . PCIT SUBMITTED THAT AS THERE WAS NON DISCLOSURE OF MATERIAL FACTS BY THE ASSESSEE ALL THROUGH FROM THE RETURN OF INCOME TAX A UDIT REPORT AUDITED ACCOUNTS TO THE ASSESSMENT PROCEEDINGS. AS CONTENDED DURING THE HEARING PROCEEDINGS AND ADMITTED BY APPELLANT THAT MANAGEMENT OF M/S.B.RAHEJA BUILDERS PVT. LTD. (THE ASSESSEE) WAS EARLIER WITH THE VIJAY RAHEJA GROUP BUT SUBSEQUENTLY T AKEN BY K. RAHEJA GROUP. THE ASSESSEE'S PAPERBOOK IS BASED ON EVIDENCES TAKEN BY K. RAHEJA GROUP FROM THE AO . THE ASSESSEE NEITHER BEFORE THE AO NO R DURING APPELLATE PROCEEDINGS BEFORE LD. PCIT OR 16 ITA NO. 1132 AND 1133 /MUM/201 6 BEFORE HON'BLE ITAT SUBMITTED ANY EVIDENCES SO REQUIRED AND EXISTING WITH THE VIJAY RAHEJA GROUP. TO HAVE A HOLISTIC VIEW ABOUT THE TRANSACTION FOR THE IMPUGNED ASSESSMENT ENTIRE MATERIAL AS GATHERED BY AO LD. PCIT WERE MADE PART OF DEPARTMENTAL BOOK. EVID ENCES GATHERED BY THE AO OF OM DURING THE COURSE OF ASSESS MENT OF OM AND ALSO BY THE ASSESS ING OFFICER OF WW WAS INCLUDED IN THE DEPARTMENT'S PAPER BOOK. THESE EVIDENCES REFLECT THAT ASSESSEE NEITHER SUBMITTED NOR INTERESTED TO SUBMIT SUCH CRUCIAL EVIDENCES BEFORE THE AO OR APPELLATE AUTHORITY TO HIDE CRUCIAL IN FORMATION. FURTHER THERE ARE DIFFERENT AVERMENTS MADE BY ASSESSEE AT DIFFERENT LEVEL WITHOUT PRODUCING AND SUBSTANTIATING THE SAME WITH EVIDENCES. THE LD DR SUBMITTED THAT THE UPON EXAMINATION OF THE ASSESSMENT RECORDS AS HAS BEEN FILED IN THE PAPER BOOK IT IS AMPLY CLEAR THAT NO DETAILS WERE CALLED FOR BY THE AO AND FILED BY THE ASSESSEE IN RESPECT OF JOINT VENTURE JOINT APPLICATION FOR ALLOTMENT OF LAND FROM MIDC TERMS AND CONDITIONS OF ALLOTMENT AND COST OF ACQUISITION OF RIGHTS IN THE LAND FROM OM AN DS WELL CONSTRUCTION AND FINANCE PVT LTD. SIMILARLY NO DETAILS OF ALLOTMENT OF SHARES TO THESE COMPANIES WERE FILED. FOR A BIG DEAL LIKE THIS A DUE DILIGENCE IS NORMALLY COND UCTED BUT IN THE PRESENT CASE NO SUCH EXERCISE WAS UNDERTAKEN. THE LD DR SUBMITTE D THAT ALL THESE FACTS CUMULATIVELY TAKEN TOGETHER SHOWS THAT THE ASSESSEE THE CONCEALMENT HAS 17 ITA NO. 1132 AND 1133 /MUM/201 6 TAKE PLACE DUE TO NON DISCLOSURE OF MATERIALS FACTS BY THE ASSESSEE. THE LD DR ALSO SUBMITTED THAT THE AO HAS MADE DUE ENQUIRIES QUA THE PURCHASE OF LAND OR RIG HTS THEREIN BY CALLING FOR DETAILS FROM THE ASSESSEE VIDE LETTER DATED 19.05.2010 BUT THE ASSESSEE SUPPLIED DETAILS ONLY IN RESPECT OF PAYMENTS TO THE TWO COMPANIES WHO SURRENDERED THEIR INTEREST IN THE LAND. THE LD DR WHILE TAKING US THROUGH THE RELEVANT PAGES O F THE PAPER BOOK SUBMITTED THAT WHEN THE INTEREST IN THE LAND WAS SURRENDERED VIDE DEED OF ASSIGNMENT DATED 6.8.2007 RELEVANT TO AY 2008 - 09 HOW THE ASSESSEE COULD FORESEE AND CREATED PROVISIONS AS ON 31.3.2006 RELEVANT TO AY 2006 - 07. THUS ASSESSEE HAS NOT FURNISHED ANY BASIS FOR DOING SO. THE SAID ASSIGNMENT DEED DID NOT REFER TO ANY AGREEMENT OR UNDERSTANDING WHICH PRECEDED THE DEED OF ASSIGNMENT . THE LD DR ALSO POINTED OUT THAT INITIALLY THE AMOUNT PAYABLE TO THESE TWO JV PARTNERS WERE RS. 50.40 C R EACH BUT IN THE ASSIGNMENT DEED ONLY RS.43.52 CR WAS STATED. ACCORDING TO THE LD DR THERE WAS NO CLARITY AS TO THE SETTLEMENT OF PAYMENT TO THE JV PARTNERS . ALL THESE PROVES BEYOND DOUBT THAT THE ASSESSEE DID NOT WANT TO DIVULGE THE DETAILS TO THE TAX AUTHORITIES. ON THE RECORDING OF REASONS T HE LD DR SUBMITTED THAT BEFORE RE - OPENING THE CASE THE REASONS WERE RECORDED AFTER ELICITING INFORMATION FROM THE ASSESSEE AND ALSO WITH REFERENCE TO THE COPY OF ASSESSMENT ORDER OF OM WITH ANNEXURE S WHICH 18 ITA NO. 1132 AND 1133 /MUM/201 6 FORMED CREDIBLE INFORMATION THAT TRANSACTION ENTERED INTO BY THE ASSESSEE WITH TWO JV PARTNERS WAS SHAM. THE LD DR ALSO BROUGHT TO THE NOTICE OF THE BENCH THAT RS.3.00 CR ORES WAS PAID TO WELL CONSTRUCTION AND FINANCE PVT LTD ON19.08.2005 JUST AFTER JOINT VENTURE AGREEMENT BUT MUCH BEFORE THE ALLOTMENT OF LAND BY MIDC. THE LD DR FURTHER SUBMITTED THAT THE AO HAS TANGIBLE AND CREDIBLE MATERIALS BEFORE HIM FOR RE - OPENING THE ASSESSMENT. THE LD DR ALSO SUBMITTED THAT THE CASE LAWS RELIED BY THE LD AR ARE NOT APPLIC ABLE IN THE PRESENT CASE AS THE ASSESSEE HAS CONCEALED THE DISCLOSURE OF MATERIAL FACT S AND THUS THE RE - OPENING HAS CORRECTLY BEEN MADE. FINALLY THE LD DR PRAYED BEFORE THE BENCH THAT THE ORDER OF PCIT UPHOLDING THE RE - OPENING IS CORRECT AND DESERVED TO BE UPHELD. 4. 6 . WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE RELEVANT RECORDS PLACED BEFORE US INCLUDING THE VARIOUS CASE LAWS RELIED BY BOTH THE PARTIES AND ALSO THE REBUTTAL BY THE LD AR . THE UNDISPUTED FACTS ARE THAT THE ASSESSEE BO UGHT OVER THE INTEREST IN THE LAND ALLOTTED BY THE MIDC FROM TWO OTHER COMPANIES NAMELY M/S OM . AND M/S WELL CONSTRUCTION AND FINANCE PVT LTD FOR A CONSIDERATION OF RS. 100.80 CR. IN THE PRESENT CASE THE ASSESSMENT HAS BEEN COMPLETED ON 22.12.2008 U/S 143 (3) OF THE ACT AND WAS RE - OPENED BY ISSUE OF NOTICE U/S 148 OF THE ACT ON 28.5.2012 APPARENTLY FOUR YEARS AFTER THE END OF RELEVANT ASSESSMENT 19 ITA NO. 1132 AND 1133 /MUM/201 6 YEAR. THE CASE OF THE ASSESSEE WAS RE - OPENED AFTER THE AO OF THE ASSESSEE RECEIVED INFORMATION FROM THE AO OF M/S OM AFTER THE ASSESSMENT OF OM FOR AY 2008 - 09 WAS FRAMED IN DECEMBER 2010 STATING THAT THE TRANSACTION BETWEEN ASSESSEE OM AND W W WAS A SHAM AND NON GENUINE. AS PER THE PROVISIONS OF THE ACT THE RE - OPENING AFTER A PERIOD OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR CAN ONLY BE DONE ONLY IF INCOME HAS ESCAPED ASSESSMENT DUE TO ASSESSEES FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACT S FOR COMPLETION OF ASSESSMENT DURING THE ASSESSMENT PROCEEDINGS. T HE ASSESSEE HAS DULY DISCLOSED THE P URCHASE OF INTEREST IN LAND MEASURING 50 ACRES FROM TWO OTHER COMPANIES FOR A CONSIDERATION OF RS.100.80 CR WHICH WAS SHOWN IN THE INVENTORIES OF THE ASSESSEE AND MONEY OUTSTANDING TO THE TWO COMPANIES WAS ALSO SHOWN AS PAYABLE IN THE SUNDRY CREDITORS IN THE BALANCE SHEET OF THE COMPANY. IT IS ALSO TRUE THAT THE AO RAISED SPECIFIC QUERY DURING THE ASSESSMENT PROCEEDINGS QUA THE INVENTORIES AND SUNDRY CREDITORS WHICH WERE SUPPLIED TO THE AO. IT IS ONLY THEREAFTER THE AO AFTER BEING SATISFIED ACCEPTED THE S AID TRANSACTION AND THE ASSESSMENT WAS FRAMED ACCORDINGLY U/S 143(3) OF THE ACT VIDE ORDER DATED 22.12.2008. THE AO RAISED A SPECIFIC QUERY TO THE ASSESSEE QUA THE INVENTORIES AND SUNDRY CREDITORS WHICH THE ASSESSEE COMPLIED WITH BY FILING THE DETAILS OF I NVENTORIES AND SUNDRY CREDITORS HOWEVER THE COPIES 20 ITA NO. 1132 AND 1133 /MUM/201 6 OF THE AGREEMENTS WITH M/S OM AND W W WERE NOT FILED BEFORE THE AO AND AS A RESULT THE AO COULD NOT EXAMINE THE TRANSACTION AMONG THE TRIO. LOOKING THE FACTS IN TOTALITY WE ARE OF THE VIEW THAT THERE WAS FAILURE ON THE P ART OF ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACT S FOR COMPLETION OF ASSESSMENT DURING THE ASSESSMENT PROCEEDINGS. THE CASE LAWS RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE CASE AS THE NECESSARY AGREEMEN TS QUA JOINT VENTURE RELINQUISHING THE INTEREST IN THE SAID LAND WERE NOT FURNISHED BEFORE THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS AND TH ERE IS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACTS DURING THE COURSE OF ASSESSMENT AN D HENCE IN OUR OPINION THE RE - OPENING IS VALID LY DONE UNDER 1 ST PROVISO TO SECTION 147 OF THE ACT. WE ARE THEREFORE INCLINED TO HOLD THAT RE - OPENING OF ASSESSMENT U/S 147 OF THE ACT IS VALID AND ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 5. THE ISSUE AGITATED IN THE SECOND GROUND IS AGAINST THE UPHOLDING THE ORDER OF AO BY PCIT THAT THE TRANSACTION OF PURCHASE OF INTEREST IN 50 ACRES OF LAND FROM TWO COMPANIES OM AND W W WAS SHAM AND NON GENUINE AND THEREBY UPHOLDING THE REDUCTION OF 1 00.80 C R FROM THE INVENTORIES OF THE ASSESSEE. 21 ITA NO. 1132 AND 1133 /MUM/201 6 5. 1 . THE FACTS IN BRIEF ARE THAT THE ASSESSEE AND TWO OTHER COMPANIES JOINTLY APPLIED FOR 100 ACRES OF LAND TO MIDC FOR DEVELOPMENT OF IT SEZ IN AIROLI NAVI MUMBAI AND 50 ACRES WERE ALLOTTED TO THESE THREE PARTNERS FOR A CONSIDERATION OF RS. 50 58 62 500/ - .THE ASSESSEE PURCHASED THE INTEREST OF THE SAID TWO COMPANIES FOR RS. 100.80 CR AND THE SAID COMPANIES RELINQUISHED THEIR INTEREST ACCORDINGLY VIDE AGREEMENT DATED 10.12.2005. THE SAID TRANSACTION WAS UN DERTAKEN AFTER OBTAINING NECESSARY APPROVAL FROM MIDC. PURSUANT TO THE SAID AGREEMENT THE ASSESSEE PAID SOME MONEY TO THESE COMPANIES AND THE OUTSTANDING WAS DULY PROVIDED FOR IN THE BOOKS OF THE ASSESSEE AS COMPENSATION TO THESE COMPANIES BY INCREASING THE INVENTOR IES BY RS. 100.80 CR. ACCORDING TO THE AO THE PAYMENT OF RS. 100.80 CR TO THESE TW O COMPANIES IN LIEU OF RELINQUISHMENT OF INTEREST IN THE LAND WAS NOT JUSTIFIED FOR THE REASON THAT THE TWO COMPANIES (JOINT VENTURE PARTNERS) DECIDED TO QUIT THE JV WITHIN THREE DAYS OF ENTERING INTO JV AGREEMENT AN D AO OBSERVED THAT BY JUST APPLYING FOR THE PIECE OF LAND NO RIGHTS WERE CREATED IN FAVOUR OF THESE COMPANIES AND MORE SO THAT NOTHING WAS MENTIONED IN THE JOINT VENTURE AGREEMENT AS TO DUTIES RES PONSIBILITIES AND FUNDS CONTRIBUTION. IT IS ALSO UNDISPUTED THAT BOTH THE COMPANIES WERE ASSESSED TO TAX BY THE REVENUE AND DUE TAXES WERE PAID. THE AO TREATED THE ENTIRE TRANSACTION A SHAM ONE BY RELYING 22 ITA NO. 1132 AND 1133 /MUM/201 6 UPON THE DECISION OF APEX COURT IN THE CASE OF MCDO WEL L & CO LTD VS COMMERCIAL TAX OFFICER AND H ELD THAT RS. 100.80 CR INCURRED CANNOT BE TREATED AS BUSINESS EXPENDITURE. THE LD AO WITHOUT PREJUDICE ALSO HELD THAT AT BEST THE PAYMENT COULD BE REGARDED AS PROFESSIONAL FEE. BUT SINCE THE ASSESSEE NOT SUBJE CTED THE PAYMENT TO TDS U/S 194J OF THE ACT THE EXPENDITURE SHOULD BE DIS ALLOWED U/S 40(A)(IA) OF THE ACT . F INALLY AO REDUCED THE SAID AMOUNT OF RS. 100.80 CR FROM INVENTORIES ( LAND ) AND COMPLETED THE ASSESSMENT . 5. 2 . THE LD PCIT ALSO DISMISSED THE GRO UND RAISED BY THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE CONTENTIONS AND SUBMISSIONS OF THE ASSESSEE AS HAS BEEN INCORPORATED IN PARA 13 OF THE APPELLATE ORDER BY OBSERVING AND HOLDING AS UNDER: - '14. I HAVE CONSIDERED THE FACTS OF THE CASE SUBMISSI ONS AND CONTENTIONS OF THE APPELLANT AS ALSO THE ORDER OF THE AO. IT IS GATHERED THAT THE ASSESSEE PAID A SUM OF RS.1 OO. 8 O CRORES TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. WHO HAPPENED TO BE JOINT VENTURE PARTNERS FOR ACQUISITION OF LAND FR OM M/DC AT NAVI MUMBAI BUT LATER THE JOINT VENTURE WAS TERMINATED. THE AO WHILE COMPLETING THE ASSESSMENT OBSERVED THAT IT WAS WHOLLY UNNECESSARY AND SUPERFLUOUS ON THE PART OF THE ASSESSEE TO PAY A SUM OF RS.100. 80 CRORES TO THE ALLEGED JOINT VENTURE PARTNERS VIZ. OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND THAT SUCH PARTIES REMAINED IN EXISTENCE AS FAR AS THE JOINT VENTURE IS CONCERNED FOR A PERIOD OF ONLY THREE DAYS AND WALKED AWAY WITH A WHOPPING SUM OF RS.100.80 CRORES WITHOUT ANY CONTRIBUTION TO THE CAPITAL OR TAKING ANY LIABILITY ETC. IN THE WHOLE EXERCISE. THE AO ALSO OBSERVED THAT SUCH AMOUNT PAID BY THE ASSESSEE WAS IN NATURE OF PROFESSIONAL FEES AND AS THE ASSESSEE DID NOT DEDUCT ANY TAX U/ S.194J OF THE ACT ON SUCH PAYMENTS THE SAME WAS LIABLE TO BE DISALLOWED U/ S.40(A)(IA) OF THE ACT. THE AO IN THIS' REGARD ALSO RELIED UPON THE 23 ITA NO. 1132 AND 1133 /MUM/201 6 JUDGMENT OF HON'BLE SUPREME COURT IN THE CQ.!5E OF MCDOWELL & CO. LTD. VS. COMMERCIAL TAX OFFICER. THE AO ACCORDLN.GLY REDUCED THE AMOUNT OF RS .100. 8 O CRORES OUT OF THE CLOSING WORK - IN - PROGRESS OF THE ASSESSEE IN RESPECT OF THE CONCERNED PROJECT. 15. I HAVE EXAMINED THE FACTS OF THE CASE. BEFORE PROCEEDING FURTHER IT WILL BE RELEVANT TO MENTION THE SEQUENCE OF EVENTS A S MENTIONED BY THE ASSES SEE ITSELF BEFORE THE AO AS UNDER : - DATE EVENT 16/08/2005 THE ASSESSEE COMPANY ENTERED INTO A JOINT VENTURE AGREEMENT WITH WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AND OM . WITH A OBJECT OF DEVELOPING AN IT. PARK IN NAVI MUMBAI. 18/ 8/2005 THE COMPANIES JOINTLY MADE AN APPLICATION TO MIDC FOR ALLOTMENT OF LAND FOR DEVELOPING AN IT PARK. 19/O8/2005 AFTER SIGNING THE JOINT VENTURE AGREEMENT THE COMPANIES MUTUALLY DECIDED TO PART WAYS AND THE ASSESSEE COMPANY PROPOSED TO GO AHEAD INDEPENDENTLY WITH THE PROJECT IN CASE THE PLOT IS ALLOTTED TO THEM JOINTLY. 19/O8/2005 THE ASSESSEE COMPANY MADE PAYMENT OF RS.3 CRORES UP FRONT TO WELLWISHER CONSTRUCTION AND FINANCE PVT.LTD. ON 19/8/2005 AS A TOKEN AMOUNT FOR RELINQUISHING ITS RI9.~ IN THE JOINT V ENTURE JUST THREE DAYS AFTER THE SIGNING OF JOINT VENTURE AGREEMENT. 15/09/05 CONSEQUENT TO PROPOSAL MADE BY THE ASSESSEE COMPANY WITH OTHER TWO COMPANIES JOINTLY TO MIDC A PLOT OF LAND WAS OFFERED FOR A PREMIUM OF RS.50 CRORES BY MIDC 23/09/2005 VIDE LETTER DATED 23/9/2005 THIS OFFER WAS CLAIMED TO HAVE BEEN ACCEPTED BY ALL THREE COMPANIES. 14/11/2005 MIDC THROUGH LETTER DATED 14/11/2005 ALLOTTED PLOT OF LAND OF 50 ACRES FOR A PREMIUM OF RS.50 CRORES ON A CONDITION THAT INIT IAL PAYMENT OF RS.25.29 CRORES TO BE PAID WITHIN THIRTY DAYS OF ALLOTMENT 10/12/2005 A FORMAL AGREEMENT DATED 10/12/2005 WAS SIGNED BETWEEN. THE ASSESSEE COMPANY AND OM . AND' WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. AS PER WHICH THE Y AGREED TO RELINQUISH THEIR RIGHTS IN THE PLOT OF LAND FOR A COMPENSATION. 12/12/2005 THE INITIAL PREMIUM AMOUNT OF RS.25.29 CRORES WAS PAID 24 ITA NO. 1132 AND 1133 /MUM/201 6 BY THE ASSESSEE COMPANY. 10/12/2005 RS. 40 LACS EACH WAS PAID TO WELLWISHER & OM METALS 02/01/2006 RS.3.12 CRORES WAS PAID TO OM METALS 02/01/2006 RS.12.50 LACS WAS PAID TO WELLWISHER. 24/02/2006 MIDC ALLOTTED LAND VIDE LETTER DATED 24/2/2006 25/03/2006 ALL THE THREE COMPANIES MADE A REQUEST TO MIDC TO EXECUTE THE LEASE DEE D IN FAVOUR OF THE ASSESSEE COMPANY 31/03/2006 THE ASSESSEE COMPANY MADE PROVISION IN THE BOOKS OF ACCOUNTS TOWARDS BALANCE COMPENSATION PAYABLE OF RS.46.87 CRORES TO EACH OF THE COMPANIES AND THE SAME WAS ADDED TO CAPITAL WIP TOWARDS COST OF PLOT BY THE ASSESSEE COMPANY 03/08/2007 LEASE DEED WAS EXECUTED BY ALL THREE COMPANIES WITH MIDC 06/08/2007 WELL WISHER AND OM METALS SIGNED DEED OF ASSIGNMENT ASSIGNING THEIR RIGHTS IN PLOT IN FAVOUR OF THE ASSESSEE 21/08/200 7 A REQUEST WAS MADE TO MIDC FOR GRANTING PERMISSION FOR ASSIGNMENT OF RIGHTS IN FAVOUR OF THE ASSESSEE COMPANY WHICH WAS FOLLOWED BY ANOTHER REQUEST LETTER DATED 21.8.2007 29.10.2007 MIDC FINALLY GRANTED PERMISSION FOR ASSIGNMENT OF RIGHTS I N PLOT OF LAND IN FAVOUR OF THE ASSESSEE COMPANY ON PAYMENT OF PERMISSION O F RS.78 89 700. FROM THE ABOVE SEQUENCE OF EVENTS MENTIONED BY THE ASSESSEE ITSELF BEFORE THE AO IT IS QUITE CLEAR THAT ON 16/8/2005 THE ASSESSEE COMPANY ENTERED INTO A JOINT VENTURE WITH OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. WITH THE SO - CALLED OBJECT OF DEVELOPING AN I. T. PARK IN NAVI MUMBAI. IT FURTHER APPEARS THAT THEY JOINTLY MADE AN APPLICATION TO MIDC ON 18/8/2005 FOR ALLOTMENT OF LAND FOR DEVELOPM ENT OF I. T. PARK. IMMEDIATELY THEREAFTER ON 19/8/2005 OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. DECIDED TO PART WAYS WITH THE ASSESSEE AS FAR AS THE PROJECT IS CONCERNED AND THE' 'ASSESSEE DECIDED TO PROCEED WITH THE PROJECT INDEPENDENTLY. S UBSEQUENTLY ON 15/9/2005 MIDC OFFERED A PLOT OF LAND TO THE ASSESSEE COMPANY THOUGH IT IS CLAIMED THAT IT WAS OFFERED TO ALL THE THREE COMPANIES AND THEREAFTER ON 23/9/2005 THE PROPOSAL OF ALLOTMENT WAS CLAIMED TO HAVE BEEN ACCEPTED BY ALL THE THREE C OMPANIES. LATER MID C THROUGH A LETTER DATED 14/11/2005 ALLOTTED A PLOT OF LAND OF 25 ITA NO. 1132 AND 1133 /MUM/201 6 50 ACRES FOR A PREMIUM OF RS.50 CRORES ON THE CONDITION THAT INITIAL PREMIUM. 0/RS.25.29 CRORES WILL BE PAID WITHIN 30 DAYS OF ALLOTMENT. THEREAFTER ON THE BASIS OF EAR LIER UNDERSTANDING THAT THE ASSESSEE WOULD DEVELOP THE PLOT INDEPENDENTLY OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. AGREED TO RELINQUISH THEIR RIGHTS OVER THE LAND.' VIDE AGREEMENT DATED 10/12/2005 {FOR A COMPENSATION OF RS.L00.80 CRORES}. FROM THE ABOVE SEQUENCE OF EVENTS IT APPEARS THAT A JOINT VENTURE OF THE THREE COMPANIES NAMELY THE ASSESSEE COMPANY OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. CAME INTO EXISTENCE ON 16/8/2005 AND THE SAME FELL APART JUST AFTER TWO DAYS ON 19/8/20 05 WHICH APPEARS TO BE QUITE STRANGE. IT. IS ALSO CLEAR THAT EVEN BEFORE THE ALLOTMENT OF LAND WAS MADE TO THE SO - CALLED JOINT VENTURE ON 14/11/2005 THE ASSESSEE COMPANY CHOSE TO PAY A SUM OF RS.3 CRORES UPFRONT TO WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. ON 19/8/2005 ITSELF FOR RELINQUISHING RIGHTS IN THE JOINT VENTURE WHICH IS STRANGE AND SURPRISING. IT FURTHER APPEARS THAT NEITHER OM . NOR WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. UNDERTOOK ANY LIABILITY IN THE WHOLE EXERCISE OF FORMATION OF THIS JOINT V ENTURE NOR THEY MADE ANY INVESTMENT OR CAPITAL CONTRIBUTION AND THEY JUST WALKED AWAY WITH A WHOPPING AMOUNT OF RS.100.80 CRORES WHICH THEY TRIED TO CLAIM IN THEIR ACCOUNTS AS CAPITAL RECEIPT SO THAT THEY' WERE NOT REQUIRED TO PAY ANY TAX ON THIS AMOUNT AND AT THE SAME TIME; THE ASSESSEE CHOSE TO CLAIM THIS AMOUNT AS PART OF PROJECT WORK - IN - PROGRESS/ COST OF THE PROJECT WHICH AMOUNTS TO REVENUE EXPENDITURE. THEREFORE ON ONE HAND THE ASSESSEE WAS TRYING TO CLAIM THIS AMOUNT AS REVENUE EXPE NDITURE AND ON THE OTHER HAND THE RECIPIENTS WERE TRYING TO CLAIM THIS AMOUNT AS CAPITAL RECEIPT. FURTHER IT IS RELEVANT TO MENTION OVER HERE THAT EVEN BEFORE ANY LAND WAS ALLOTTED TO THE - SO - CALLED JOINT VENTURE OR PERMANENTLY TO THE ASSESSEE COMPANY A SUM OF RS.3 CRORES HAD BEEN PAID TO WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. ONE OF THE COMPANIES OF THE JOINT VENTURE WITHOUT ANY BASIS OR JUSTIFICATION. IT IS ALSO INTERESTING TO NOTE THAT THE OTHER TWO COMPANIES HAVE NOT BROUGHT IN ANY CAPITAL OR EXPERTISE TO THE PROJECT AND EVEN THE ENTIRE AMOUNT FOR THE PLOT PAYABLE TO MIDC HAD BEEN PAID BY THE ASSESSEE COMPANY BUT STILL THEY WERE PAID A WHOPPING AMOUNT OF RS.1 00.80 CRORES. FURTHER AS STATED ABOVE ONE OF THE PARTNERS OF THE JOINT VENTURE WA S PAID A SUM OF RS.3 CRORES JUST AFTER TWO DAYS OF FORMATION: OF THE SO - CALLED JOINT VENTURE AND BEFORE ALLOTMENT OF THE LAND BY MIDC WHICH INDICATES THAT THE ENTIRE EXERCISE WAS PRE - PLANNED AT THE END OF THE ASSESSEE. IT IS FURTHER RELEVANT TO MENTION OV ER HERE THAT AS PER THE ALLOTMENT LETTER DATED 14/11/2005' ISSUED BY MI DC A PLOT OF LAND OF 50 ACRES WAS ALLOTTED FOR AN AMOUNT OF RS.50 CRORES. HOWEVER THE ASSESSEE HAS PAID A TOTAL AMOUNT OF RS.1 00.80 CRORES TO THE JOINT VENTURE PARTNERS WHICH IS MOR E THAN TWO TIMES OF THE COST OF THE PLOT OF LAND. THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN THE BASIS OF 26 ITA NO. 1132 AND 1133 /MUM/201 6 COMPUTING THE COMPENSATION PAYABLE TO THE JOINT VENTURE PARTNERS AT A HUGE AMOUNT OF RS.100.80 CRORES. THIS GIVES RISE TO SERIOUS DOUBTS ABOUT THE GEN UINENESS OF THE. WHOLE TRANSACTION. 16. BEFORE ME THE LEARNED AR HAS MENTIONED THAT CERTAIN OBSERVATIONS OF THE AO REGARDING DATE OF APPLICATION FOR ALLOTMENT OF LAND DATE OF DISSOLUTION OF JOINT VENTURE ETC. HOWEVER THE FACT REMAINS THAT THE ASSESS EE HAS NOT BEEN ABLE TO EXPLAIN AND JUSTIFY THE BUSINESS EXIGENCY IN MAKING A PAYMENT OF RS.1 00.80 CRORES TO THE 50 - CALLED JOINT VENTURE PARTNERS. AS MENTIONED ABOVE APART FROM LENDING THEIR NAMES FOR FORMATION OF A JOINT VENTURE TO APPLY FOR ALLOTMENT OF LAND FROM MIDC THESE TWO COMPANIES HAD NOT MADE ANY CONTRIBUTION TOWARDS THE PROJECT EITHER BY WAY OF CAPITAL OR EXPERTISE ETC. THIS IS EVIDENT FROM THE JOINT VENTURE AGREEMENT DATED 16/8/2005 AND AGREEMENTS DATED 10/12/2005 WHICH ARE SILENT ON THE C ONTRIBUTIONS MADE BY THESE COMPANIES. IN FACT IT HAS BEEN CLEARLY MENTIONED IN THE AGREEMENTS DATED 10/12/2005 THAT THE ENTIRE PREMIUM FOR ALLOTMENT OF THE PLOT OF LAND HAD . BEEN PAID BY THE ASSESSEE COMPANY ALONE. THE LEARNED AR HAS REFERRED TO CLAUSE 4 AND 5 OF THE JOINT VENTURE AGREEMENT WITH REGARD TO THE OBSERVATION OF THE AO THAT THE JOINT VENTURE AGREEMENT DOES NOT MENTION ANYTHING ABOUT THE DUTIES AND RESPONSIBILITIES OF THE PARTIES FUND MOBILIZATION ETC. IN THESE CLAUSES IT HAD BEEN MENTIONE D THAT THE COMMERCIAL TERMS AND CONDITIONS FOR DEVELOPMENT OF THE IT. PARK SHALL BE SET OUT IN A SEPARATE AGREEMENT AT A LATER DATE AND THAT THE MANAGEMENT EXECUTION AND OTHER DETAILS SHALL BE SET OUT BETWEEN THE PARTIES FOLLOWING THE ALLOTMENT OF LAND. I T IS ALSO STATED BY THE LEARNED AR THAT DUE TO VARIOUS DISAGREEMENTS THE PARTNERS DECIDED TO TERMINATE THE JOINT VENTURE AGREEMENT AND THEREFORE THE NEED FOR DETAILING THE JOINT VENTURE TERMS DID NOT ARISE. THESE CLAUSES OF THE JOINT VENTURE AGREEMENT AND THE ADMISSION OF THE LEARNED AR THAT NO AGREEMENT IN THIS REGARD WAS EXECUTED ON ACCOUNT OF TERMINATION. OF THE JOINT VENTURE AGREEMENT MAKE IT AMPLY CLEAR THAT NO CONTRIBUTION HAD BEEN MADE BY THESE COMPANIES TOWARDS THE PROJECT AS NO CONTRIBUTION W OULD HAVE BEEN MADE BY THEM IN TH E ABSENCE OF ANY AGREEMENT IN THAT REGARD. 17. THE LEARNED AR HAS ALSO CONTENDED THAT THE CREDENTIALS AN D CREDIBILITY THAT THESE COMPANIES BROUGHT TO THE VENTURE WAS SIGNIFICANT FOR ENSURING THAT THE LAND IS ALLOTTED TO THE JOINT VENTURE BY MLDC. IF THE PAYMENT IN QUESTION HAD BEEN MADE ON ACCOUNT OF THE GOODWILL TH AT THESE COMPANIES ARE CLAIMED TO HAVE BROUGHT TO THE VENTURE SUCH FAC T WOULD HAVE BEEN CLEARLY MENTIONED IN THE JOINT VENTURE AGREEMENT A ND THE AGREEMENTS R ELINQUISHING THEIR RIGHTS. SURPRISINGLY THE AGREEMENT S DATED 10/12/2005 DO NOT MENTION ANY REASON FOR TERMINATION OF TH E JOINT VENTURE AND AS TO HOW THE COMPENSATION IS COMPUTED. IN AN Y CASE IT HAS NOT BEEN EXPLAINED AS TO HOW THE COMPENSATION FOR THE S O CALLED GOODWILL COULD BE 27 ITA NO. 1132 AND 1133 /MUM/201 6 VALUED AT AN AMOUNT MORE THAN TWO TIMES OF THE COST OF THE LAND. HENCE THIS EXPLANATION OF THE ASSESSEE IS ONLY A N AFTER - THOUGHT AND THE; SAME CANNOT BE ACCEPTED. FURTHER THE ASSESSEE COMPANY ITSELF IS A RENOWNED DEVELOPER OF R EAL ESTATE AND IT WA S ALREADY DEVELOPING AN IT' PARK AT BANQALORE. THE ASSESSEE COMPAN Y ALSO HAD ADEQUATE INFR ASTRUCTURE MANPOWER FINANCIAL STRENGTH ETC. TO DEVELOP THE IT PARK INDEPENDENTLY. IT IS ALSO NOT THE CASE THAT TH E MIDC WOULD HAVE ALLOTTED T HE LAND ONLY IN THE NAME OF MORE THAN ON E COMPANY. THEREFORE THE DECISION TO FORM A JOINT VENTURE ONLY TO B E TERMINATED IMMEDIATELY THEREAFTER ITSELF APPEARS TO BE WITHOUT AN Y VALID REASON. 18. THE LEARNED AR HAS ALSO CONTENDED THAT THE A O 'S ASSUMPTIO N THAT THE JOINT VENTURE WAS DISSOLVED ON 19/8/2005 WAS WRONG AS TH E AGREEMENT FOR TERMINATION OF THE JOINT VENTURE WAS ENTERED INTO ONLY ON 10/12/2005 AND THAT THE ACTUAL PAYMENTS AND FINAL TERMINATION OF TH E JOINT VENTURE TOOK PLACE ONLY IN AUGUST 200 7. ACCORDINGLY THE LEA RNED AR CONTENDED THAT THE TRANSACTION COULD NOT BE REGARDED AS A PRE DETERMINED OR PAPER TRANSACTION. AS PER THE SEQUENCE OF EVENTS GIVE N BY THE ASSESSEE ITSELF BEFORE THE AD (WHICH IS REPRODUCED BY THE A O ON PAGE NOS.12 TO 14 OF THE ASSESSMENT ORDER) AFTER SIGNING THE JO INT VENTURE AGREEMENT ON 16/8/2005 THE PARTIES HAD MUTUALLY DECIDED TO PART WAYS AND THE ASSESSEE COMPANY PROPOSED TO GO AHEA D INDEPENDENTLY WITH THE PROJECT IN CASE THE PLOT IS ALLOTTED TO TH EM JOINTLY. IT HA S BEEN FURTHER MENTIONED BY THE ASSESSEE ITSELF TH AT CONSEQUENT TO THIS UNDERSTANDING IT HAD ALSO MADE ON ACCOUNT PAYMENT OF RS.3 UPFRONT TO WELL WISHERS ON 19/8/2005 ITSE LF. THUS IT IS ADMITTED BY THE ASSESSEE ITSELF THAT THE DECISION TO TERMINA TE THE JOINT VENTURE HAD BEEN TAKEN BY THE PARTIES AND A PAYMENT OF RS. 3 CRORES HAD ALSO BEEN MADE TO ONE OF THE PARTIES AS PER SU CH UNDERSTANDING IMMEDIATELY AFTER FORMATION OF THE JOINT VENTURE AN D BEFORE ALLOTMENT OF ANY LAND BY MIDC. THEREFORE IT IS NOT MA TERIAL TH AT THE AGREEMENT IN THIS REGARD WAS ENTERED INTO LATER. 19. BEFORE ME THE LEARNED AR HAS ALSO CONTENDED THAT THE JOI NT VENTURE AGREEMENT WAS TERMINATED DUE TO VARIOUS DISAGREEMENTS AMONG THE PARTNERS. THE JOINT VENTURE AGREEMENT WAS ENTERED IN TO ON 16/8/2005 AND THE DECISION TO TERMINATE THE JOINT VENTURE WAS TAKEN JUST AFTER TWO DAYS ON 19/8/2005. IT HAS NOT BEEN EXPLAINED AS TO WHAT DISPUTES AND DISAGREEMENTS AROSE IN TWO DAYS AFTER FORMING THE JOINT VENTURE. THE AGREEMENTS FOR TERMINATION OF THE JOINT VENTURE ALSO DO NOT SAY ANYTHING TO THIS EFFECT. ON THE CONTRARY AS PER THESE AGREEMENTS THE ASSESSEE COMPANY HAD REQUESTED THE TWO COMPANIES TO RELEASE AND ASSIGN THEIR RIGHTS IN THE LAND IN FAVOUR OF THE ASSESSEE COMPANY AND THE COMPANIES 28 ITA NO. 1132 AND 1133 /MUM/201 6 HAD AGREED TO DO THE SAME FOR A CONSIDERATION. THUS THE AGREEMENTS FOR TERMINATION OF JOINT VENTURE DO NOT MENTION ANY REASON FOR TERMINATION. EVEN BEFORE THE AO DURING ASSESSMENT PROCEEDINGS OR BEFORE ME THE APPELLANT HAS NOT EXPLAINED THE EXACT REASONS FOR TERMINATION OF THE JOINT VENTURE. 20. THE LEARNED AR ALSO CONTENDED BEFORE ME THAT THE ASSESSEE HAD INCURRED VARIOUS EXPENSES IN CONNECTION WITH THE TRANSACTION AND THAT SUCH EXPENSES WOULD NOT HAVE BEEN INCURRED IF THE TRANSACTION WAS A SHAM TRANSA CTION. H OWEVER I DO NOT AGREE WITH SUCH CONTENTION OF THE LEARNED AR. MEREL Y BECAUSE CERTAIN EXPENSES ARE INCURRED BY THE ASSESSEE IN CONNECTION .WITH A TRANSACTION SUCH TRANSACTION CANNOT BE HELD TO BE A GENUINE ONE. THE ASSESSEE MAY DELIBERATELY INCUR CERTAIN EXPENSES TO SHOW THAT A NON - GENUINE TRANSACTION IS A GENUINE TRANSACTION. WHETHER A.' TRANSACTION IS A GENUINE ONE OR NOT IS TO BE DECIDED AFTER CONSIDERING ALL THE RELEVANT FACTS OF THE CASE. IN THE PRESENT CASE FIRSTLY THE ASSESSEE HAS NOT EST ABLISHED THAT IT HAD TO ENTER INTO THE JOINT VENTURE AGREEMENT FOR BONA FIDE AND GENUINE BUSINESS PURPOSES AS IT COULD HAVE APPLIED FOR ALLOTMENT OF THE LAND ON ITS OWN. SECONDLY THE ASSESSEE HAS. NOT EXPLAINED SATISFACTORILY AS TO WHY THE JOINT VENTURE AGREEMENT WAS TERMINATED ONLY AFTER THREE DAYS OF FORMATION EVEN THOUGH A FORMAL AGREEMENT IN THIS REGARD MAY HAVE BEEN SIGNED LATER. IT IS FURTHER FORTIFIED FROM THE FACT THAT THE ASSESSEE PAID A SUM OF RS.3CRORES TO ONE OF THE JOINT VENTURE PARTNERS W ELLWISHER CONSTRUCTION & FINANCE PUT. LTD. ON 19/8/2015 ITSELF EVEN BEFORE ANY LAND COULD BE ALLOTTED TO THE JOINT VENTURE BY THE MIDC WHICH GIVES RISE TO SUSPICION ABOUT THE GENUINENESS OF JOINT VENTURE OR THE TRANSACTION AND SOMETHING LOOKS FISHY IN T HE WHOLE EXERCISE. THIRDLY THE ASSESSEE HAS NOT JUSTIFIED AND ESTABLISHED THE COMMERCIAL EXPEDIENCY IN MAKING THE PAYMENT OF A LARGE AMOUNT OF RS.1 0 0 .80 CRORES TO THE TWO COMPANIES AS CONSIDERATION FOR RELEASING AND ASSIGNING THEIR RIGHTS IN THE LAND ALL OTTED BY THE MIDC WHEN THE COST OF THE LAND WAS ONLY ABOUT RS.50 CRORES AND THE PARTIES HAD NOT MADE ANY CONTRIBUTION EITHER BY WAY OF CAPITAL OR EXPERTISE OR IN ANY OTHER FORM TOWARDS THE PROJECT EX CEPT LENDING THEIR NAMES AS ONE OF THE APPLICANTS FOR ALLOTMENT OF THE LAND. UNDER THE CIRCUMSTANCES THE ENTIRE TRANSACTION HAS TO BE HELD AS NOT GENUINE. OBVIOUSLY THE ENTIRE TRANSACTION IS AN ARRANGEMENT DEVISED TO CLAIM LARGE AMOUNT AS EXPENDITURE AND THEREBY TO AVOID PAYMENT OF TAXES TO THAT EXTENT WH EN THE INCOME FROM THE PROJECT WILL BE CHARGEABLE TO TAX. 21. DURING THE COURSE OF APPELLATE PROCEEDINGS THE ASSESSEE ALSO FILED A VALUATION REPORT OF M/ S. SUNDEEP H.B. & CO. REGISTERED VALUERS IN RESPECT OF THE LAND IN QUESTION AND CONTENDED THAT T HE PAYMENT OF RS.100.80 CRORES MADE TO OM AND WELLWISHERE CONSTRUCTION & FINANCE 29 ITA NO. 1132 AND 1133 /MUM/201 6 PUT. LTD. WAS NOT DISPROPORTIONATE TO THE FAIR MARKET VALUE OF THE LAND. HOWEVER IT IS SEEN THAT THIS VALUATION REPORT HAS BEEN PREPARED ONLY ON 20/2/2015. THEREFORE IT I S OBVIOUS THAT THE AMOUNT PAYABLE TO THE ABOVE TWO COMPANIES HAD NOT BEEN DETERMINED ON THE BASIS OF SUCH VALUATION REPORT. FURTHER AS PER THIS VALUATION REPORT THE FAIR MARKET VALUE OF THE PLOT OF LAND IN QUESTION AS ON 28/2/2007 WAS RS.125 72 94 500/ - AND NOT AS ON 19/8/2005 WHEN THE JOINT VENTURE PARTNERS DECIDED TO PART WAYS OR 15/9/2005 WHEN THE ALLOTMENT OF LAND WAS MADE. SO FIRSTLY THE FIGURE OF RS.125.72 CRORES AS ON 28/2/2007 MAY NOT BE RELEVANT FOR COMPUTATION OF COMPENSATION AS ON 19/8/2 005. SECONDLY EVEN CONSIDERING THIS MARKET VALUE OF THE LAND PAYMENT OF RS.100.80 CRORES (WHICH IS MUCH MORE THAN 2/3 RD OF THE MARKET VALUE OF THE LAND AS ON 28/2/2007) TO THE ABOVE PARTIES CANNOT BE TREATED AS JUSTIFIED IN VIEW OF THE FACT THAT THE SAI D TWO COMPANIES HAD NOT CONTRIBUTED ANY CAPITAL OR TECHNICAL EXPERTISE TOWARDS THE PROJECT AND THAT THEY HAD MERELY LENT THEIR NAMES AS C O - APPLICANTS FOR ALLOTMENT OF THE LAND. MOREOVER THE DECISION TO TERMINATE THE SO - CALLED JOINT VENTURE AGREEMENT WAS T AKEN BY THE PARTIES AND THE ASSESSEE COMPANY HAD ALSO STARTED MAKING PAYMENTS TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. IN THIS REGARD ON 19/8/2005 ITSELF. THEREFORE IT IS NOT UNDERSTOOD AS TO HOW THE MARKET VALUE AS ON 28/2/2007 COULD BE C ONSIDERED AS THE BASIS FOR MAKING THE PAYMENT OF RS.100.80 CRORES. AS STATED ABOVE THE ASSESSEE COMPANY HAD MADE A PAYMENT OF RS.3 CRORES TO ONE OF THE JOINT VENTURE PARTNERS VIZ. WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. FOR ALLEGEDLY RELINQUISHING T HEIR RIGHTS IN LAND EVEN BEFORE THE ALLOTMENT OF THE PLOT IN QUESTION AND AT THAT STAGE IT WAS NOT EVEN CERTAIN THAT THE LAND WILL BE ALLOTTED TO THE JOINT VENTURE BY MIDC. IN OTHER WORDS THE ASSESSEE COMPANY HAD MADE SUCH PAYMENT WHEN THE PARTY CONCE RNED DID NOT HAVE ANY RIGHTS TO BE RELINQUISHED. THIS ALSO SHOWS THAT THE ENTIRE ARRANGEMENT WAS PRE - DETERMINED. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE VALUATION REPORT FILED BY THE ASSESSEE DURING APPELLATE PROCEEDINGS ALSO DOES NOT JUSTIFY THE P AYMENT OF RS.1 00.80 CRORES TO THE ABOVE - MENTIONED COMPANIES. 22. IT MAY BE CLARIFIED HERE THAT THE FACT THAT THE CORRESPONDING RECEIPT HAS BEEN TAXED IN THE HANDS OF OM . WILL NOT AFFECT THE ALLOWABILITY OF THE EXPENDITURE IN THE HANDS OF THE ASSESSEE CO MPANY. HERE PAYMENT OF THE AMOUNT IN QUESTION BY THE ASSESSEE IS NOT BEING QUESTIONED. SINCE THE ASSESSEE HAD PAID THE AMOUNT TO THE PARTIES THE AO WILL BE AT LIBERTY TO EXAMINE THE TAXABILITY THEREOF IN THE HANDS OF THE RECIPIENTS. AS FAR AS THE CASE OF THE ASSESSEE IS CONCERNED THE ISSUE IS WHETHER THE AMOUNTS PAID COULD BE ALLOWED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS. AS STATED ABOVE THE ASSESSEE HAS NOT 30 ITA NO. 1132 AND 1133 /MUM/201 6 BEEN ABLE TO JUSTIFY THE PAYMENT OF RS.100.80 CR ORES AND CONSEQUENTLY THE EXPENDITURE CANNOT BE ALLOWED IN THE HANDS OF THE ASSESSEE. 23. IN THE CASE OF MCDOWE LL & CO. LD. VS. COMMERCIAL TAX OFFICER (154 ITR 148) THE HONBLE SUPREME COURT HAS DEALT WITH THE ISSUE OF TAX AVOIDANCE BY OBSERVING AS UNDER : WE THINK THAT TIME HAS COME FOR US TO DEPART FROM THE WESTMINISTER PRINCIPLE AS EMPHATICALLY AS THE BRITISH COURTS HAVE DONE AND TO DISSOCIATE OURSELVES FROM THE OBSERVATIONS OF SHAH J. AND SIMILAR OBSERVATIONS MADE ELSEWHERE. THE EVIL CONSEQUEN CES OF TAX AVOIDANCE ARE MANIFOLD. FIRST THERE IS SUBSTANTIAL LOSS OF MUCH NEEDED PUBLIC REVENUE PARTICULARLY IN A WELFARE STATE LIKE OURS. NEXT THERE IS THE SERIOUS DISTURBANCE CAUSED TO THE ECONOMY OF THE COUNTRY BY THE PILING UP OF MOUNTAINS OF BLACKMO NEY DIRECTLY CAUSING INFLATION. THEN THERE IS 'THE LARGE HIDDEN LOSS' TO THE COMMUNITY (AS POINTED OUT BY MASTER SHEATCRAFT IN 18 MODERN LAW REVIEW 209) BY SOME OF THE BEST BRAINS IN THE COUNTRY BEING INVOLVED IN THE PERPETUAL WAR WAGED BETWEEN THE TAX - AV OIDER AND HIS EXPERT TEAM OF ADVISERS LAWYERS AND ACCOUNTANTS ON ONE SIDE AND THE TAX - GATHERER AND HIS PERHAPS NOT SO SKILFUL ADVISERS ON THE OTHER SIDE. THEN AGAIN THERE IS THE 'SENSE OF INJUSTICE AND INEQUALITY WHICH TAX AVOIDANCE AROUSES IN THE BREAST S OF THOSE WHO ARE UNWILLING OR UNABLE TO PROFIT BY IT'. LAST BUT NOT THE LEAST IS THE ETHICS (TO BE PRECISE THE LACK OF IT) OF TRANSFERRING THE BURDEN OF TAX LIABILITY TO THE SHOULDERS OF THE GUIDELESS GOOD CITIZENS FROM THOSE OF THE 'ARTFUL DODGERS'. IT MAY INDEED BE DIFFICULT FOR LESSER MORTALS TO ATTAIN THE STATE OF MIND OF MR. JUSTICE HOLMES WHO SAID 'TAXES ARE WHAT WE PAY FOR CIVILIZED SOCIETY. I LIKE TO PAY TAXES. WITH THEM I BUY CIVILIZATION.' BUT SURELY IT IS HIGH TIME FOR THO JUDICIARY IN I NDIA TOO TO PART ITS WAYS FROM THE PRINCIPLE OF WESTMINISTER AND THE ALLURING LOGIC OF TAX AVOIDANCE. WE NOW LIVE IN A WELFARE STATE WHOSE FINANCIAL NEEDS IF BACKED BY THE LAW HAVE TO BE RESPECTED AND MET. WE MUST RECOGNISE THAT THERE IS BEHIND TAXATION LAWS AS MUCH MORAL SANCTION AS BEHIND ANY OTHER WELFARE LEGISLATION AND IT IS A PRETENCE TO SAY THAT AVOIDANCE OF TAXATION IS NOT UNETHICAL AND THAT IT STANDS ON NO LESS MORAL PLANE THAN HONEST PAYMENT OF TAXATION. IN OUR VIEW THE PROPER WAY TO CONSTRUE A TAKING STATUTE WHILE 31 ITA NO. 1132 AND 1133 /MUM/201 6 CONSIDERING A DEVICE TO AVOID TAX IS NOT TO ASK WHETHER THE PROVISIONS SHOULD BE CONSTRUED LITERALLY OR LIBERALLY NOR WHETHER THE TRANSACTION IS NOT UNREAL AND NOT PROHIBITED BY THE STATUTE BUT WHETHER THE TRANSACTION IS A DEVICE TO AVOID TAX AND WHETHER THE TRANSACTION IS SUCH THAT THE JUDICIAL PROCESS MAY ACCORD ITS APPROVAL TO IT.A HINT OF THIS APPROACH IS TO BE FOUND IN THE JUDGMENT OF DESAI J. IN WOOD POLYMER LTD. V. BENGAL HOTELS LIMITED(1) WHERE THE LEARNED JUDGE REFUSED TO ACCORD SANCTION TO THE AMALGAMATION OF COMPANIES AS IT WOULD LEAD TO AVOIDANCE OF TAX. IT IS NEITHER FAIR NOR DESIRABLE TO EXPECT THE LEGISLATURE TO INTERVENE AND TAKE CARE OF EVERY DEVICE AND SCHEME TO AVOID TAXATION. IT IS UPTO THE COURT TO TAKE STOC K TO DETERMINE THE NATURE OF THE NEW AND SOPHISTICATED LEGAL DEVICES TO AVOID TAX AND CONSIDER WHETHER THE SITUATION CREATED BY THE DEVICES COULD BE RELATED TO THE EXISTING LEGISLATION WITH THE AID OF 'EMERGING' TECHNIQUES OF INTERPRETATION AS WAS DONE IN RAMSAY BURMA OIL AND DAWSON TO EXPOSE THE DEVICES FOR WHAT THEY REALLY ARE AND TO REFUSE TO GIVE JUDICIAL BENEDICTION. THE RATIO OF THE ABOVE JUDGMENT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THE ARRANGEMENT AT THE END OF THE ASSESSE E COMPANY TO PAY A SUM OF RS. 100 . 80 CRORES TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. IS A DEVISE TO AVOID TAX. 24. IN VIEW OF THE DISCUSSION IN THE FOREGOING PARAGRAPHS I HOLD THAT THE ASSESSEE CANNOT BE ALLOWED DEDUCTION FOR RS .1 00.80 CRO RES BEING PAYMENTS MADE TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PUT. LTD. AS BUSINESS EXPENDITURE. CONSEQUENTLY THE DISALLOWANCE MADE BY THE AA IN THIS REGARD IS UPHELD AND THE GROUND TAKEN BY THE ASSESSEE IS REJECTED. FURTHER ON THE SIMILAR LIN ES THE CLAIM OF INTEREST EXPENDITURE ON LOAN TAKEN FOR MAKING PAYMENTS TO OM . AND WELLWISHER CONSTRUCTION & FINANCE PVT. LTD. HAS ALSO BEEN HELD AS NOT ALLOWABLE BY THE UNDERSIGNED IN THE CASE OF THE ASSESSEE FOR A.Y. 2006 - 07. THEREFORE FOLLOWING MY OWN ORDER IN THE CASE OF THE ASSESSEE FOR A.Y. 2006 - 07 THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.L 03 26 288J - AND CONSEQUENT REDUCTION OF THE SAID AMOUNT FROM THE CLOSING WORK - IN - PROGRESS AS ON 31.3.2007 IS UPHELD AND THE GROUND TAKEN BY THE ASSESSEE IS REJECTED 32 ITA NO. 1132 AND 1133 /MUM/201 6 5. 3 . THE LD AR SUBMITTED THAT THE ORDER OF FIRST APPELLATE AUTHORITY WAS INCORRECT AND CONTRARY TO THE FACTS ON RECORDS PARTICULARLY WHEN BOTH THE JOINT VENTURE PARTNERS RECEIVING THE PAYMENT OF RS. 100.80 CR IN EQUAL PROPORTION IN LIEU OF SURRENDER OF INTEREST IN 50 ACRES OF LAND IN QUESTION WERE DULY ASSESSED BY THE REVENUE AUTHORITIES WITHOUT DOUBTING OR TREATING THE TRANSACTION AS SHAM IN THEIR HAND S . THE LD AR SUBMITTED THAT BOTH COMPANIES M/S OM AND W W WERE INVOLVED RIGHT FROM THE J V AGREEMENT DATED 16.08.2005 TILL FINAL SANCTION BY MIDC OF ASSIGNMENT OF INTEREST IN THE LAND IN FAVOUR OF THE ASSESSEE BY THESE TWO COMPANIES. THEREFORE THE CONCLUSION OF THE AO THAT THE TWO COMPANIES DID NOT HAVE ANY ROLE IN THE ACQUISITION OF LAND AND THEY WERE JUST NAME LENDERS IS WRONG AND DEVOID OF ANY BASIS. THE LD AR SUBMITTED THAT THE TRANSACTION AS ENTERED INTO BETWEEN THE JOINT VENTURE PARTNERS WAS NOT A SHAM AS THE SHAM TRANSACTION INVOLVES CONCEALING TRUE NATURE AND REALITY OF TR ANSACTIONS AND IS A SUBTERFUGE TO OFFSET AGAINST ANOTHER TRANSACTION WHICH IS NOT APPARENT I N THE BOOKS. THE LD AR CONTENDED THAT THE MODUS OPERANDI OF THE JV PROVE D THAT IT WAS NOT PURPORTED TO EITHER GAIN ANY TAX BENEFIT . THE ASSESSEE AND TWO OTHER JV PARTNERS WERE N OT RELATED PARTIES. THE AO HAS ONLY DESCRIBED THE TRANSACTION AS SHAM BUT HAS FAILED TO POINT OUT ANY FEATURES OF SHAM TRANSACTION. THE LD AR TAKING US THROUGH THE CHRONOLOGY 33 ITA NO. 1132 AND 1133 /MUM/201 6 OF EVENTS SUCH AS INITIAL AGREEMENT TO TERMINATE THE JV AGREEMENT WAS MADE ON 10 .12.2005 FOUR MONTHS AFTER APPLICATION FOR ALLOTMENT WAS MADE QUANTUM OF PAYMENT TO OUT GOING JV PARTNERS WAS NOT FIXED IN THE TERMINATION AGRE EMENT ENTERED O N 10. 12.2005 BUT FORMULA TO CALCULATE WAS MENTIONED FINAL TERMINATION OF JV AGREEMENT TAKING PLA CE ON 6 . 8.20 07 NEARING AFTER TWO YEARS OF ITS FORMATION PAYMENT TO JV PARTNERS ONLY UPON THE HANDING OVER OF LAND TO ASSESSEE AND ESCROW MECHANISM TO MAKE THE PAYMENT ETC. THE LD COUNSEL ARGUED THAT RS. 2.70 CR WERE PAID TO CONSULTANTS AS CONSULTANCY A ND SERVICE CHARGES FOR NEGOTIATION EXECUTION DOCUMENTATION AND CONVEYANCE DEED ETC BESIDE OTHER EXPENSES TO BROKERS AND PROPERTY DEVELOPERS WHICH LENDS CREDENCE TO TRANSACTION BEING GENUINE. THE LD COUNSEL RELIED ON THE DECISION O F THE APEX COURT IN THE CASE OF SHREE MEENAKSHI MILLS LTD VS CIT (1956)31 ITR 28.THE REVENUE HAS NOT RAISED ANY ISSUE ABOUT RECEIPT OF MONEY BY JV PARTNERS BUT ONLY LEGAL ISSUE OF TAXABILITY OF RECEIPTS IN THEIR HAND WAS RAISED. 5.4. THE LD AR WITHOUT PREJUDICE ARGUED THAT R EVENUE ACCEPTED THE TRANSACTION AS GENUINE IN THE HAND OF O M A ND W W WHILE TREATING THE SAME TRANSACTION AS SHAM IN THE CASE OF THE ASSESSEE. IN CASE OF W W AMOUNT RECEIVED FROM ASSESSEE WAS SHOWN AS CAPITAL RECEIPTS AND MAT WAS PAID THEREON AND THE ASSESSM ENT WAS COMPLETED ACCEPTING THE TRANSACTION. 34 ITA NO. 1132 AND 1133 /MUM/201 6 THEREAFTER CIT SET ASIDE THE ASSESSMENT U/ S 263 OF THE ACT WHICH WAS SET ASIDE BY THE ITAT UPHOLDING THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT BY HOLDING THAT THE ISSUE OF RELINQUISHMENT OF INTEREST IN THE LAN D ALLOTTED BY MIDC AND RECEIPT THEREFORE WAS THOROUGHLY EXAMINED BY THE AO DURING SCRUTINY PROCEEDINGS AND GAVE CATEGORICAL FINDINGS THAT ANY PROPERTY WHETHER CONNECTED WITH BUSINESS OR NOT OTHER THAN STOCK IN TRADE IS A CAPITAL ASSET . IN THE HAND S OF OM METAL LTD THE COM P ENSATION WAS TREATED AS CAPITAL RECEIPT BUT THE AO TREATED THE SAME AS REVENUE RECEIPT WHICH WAS ACCEPTED BY THE OM AND OM PAID TAXES THEREON WITH SOME DISPUTE AS TO CLAIM OF EXPENSES WAS ALLOWED BY PCIT AND REVENUE S APPEAL BEFORE ITAT WAS ALSO DISMISSED. IN OTHER WORDS THE ASSESSMENTS OF OM AND W W WERE MADE AND TRAVELLED UPTO ITAT AND IN BOTH THE CASES THE AMOUNT PAID TO THESE PARTIES WERE ASSESSED TO TAX. THE LD AR CONTENDED THAT WHEN THE MULTIPLE TAX AUTHORITIES HAVE EXAMINED THE TRAN SACTIONS AND ACCEPTED THE SAME THEN THE SAME TRANSACTION CANNOT BECOME NON GENUINE IN THE HANDS OF ASSESSEE. ON THE REASONABILITY OF PAYMENT OF 100.80 CR THE LD AR ARGUED THAT THE AO HAS STEPPED INTO THE SHOES OF BUSINESSMAN TO DECIDE WHETHER A PARTIC ULAR PAYMENT IF REASONABLE OR NOT AND SUBMITTED THAT IT IS NOT THE JOB OF THE AO TO CHEC K THE COMMERCIAL EXPEDIENCY OF A TRANSACTION BY RELYING ON THE FOLLOWING DECISIONS NAMELY (I) THE NEWTON 35 ITA NO. 1132 AND 1133 /MUM/201 6 STUDIO LTD VS CIT 28 ITR 378 (MAD) (II) RAMAN AND RAMAN LTD VS CIT 46 ITR 400(MAD) (III) CIT VS WALCHAND & CO PVT LTD 65 ITR381 SC (I V ) JK WOOLLEN MANUFACTURE VS CIT 72 ITR 612 SC (V) CIT VS DHANRAJGIRI RAJA NARASINGIRJI 91 ITR 544 SC (V I ) SASOON J.DAVID AND CO PVT LTD VS CIT 118 ITR 261 SC (VI I ) CIT VS NATIONAL RAYON COMMERCIAL CO LTD 193 ITR 744 BOM (V I II) CIT VS DALMIA CEMENT (B) LTD 254 ITR 377 (DEL). ON THE REASONABILITY OF THE PAYMENT THE LD AR ARGUED THAT VALUE AS PER REGISTERED VALUERS REPORT BY THE ASSESSEE WAS RS.1 25 72 94 500/ - WHEREAS AS PER DVO IT WAS RS.1 23 90 08 000/ - WHICH WAS ALMOST S AME AND THERE WAS NOT MUCH DIFFERENCE AND THEREFORE REASONABILITY OF THE SAME CANNOT BE QUESTIONED. 5. 5 . PER CONTRA THE LD . DR WHILE STRONGLY OPPOSING THE ARGUMENTS OF THE LD AR SUBMITTED THAT THE TRANSACTI ON ENTERED INTO BETWEEN THE ASSESSEE AND THE OTHER TWO JV PARTNERS WAS SHAM. TAKING US THROUGH THE FACTS IN CHRONOLOGY OF THE CASE THE LD DR SUBMITTED THAT THE JT.VENTURE AGREEMENT DT.16.08.2005 WAS EXECUTED BETWEEN ASSESSEE WW AND OM. THOUGH THIS UN REGISTERED JV ON RS.100 STAMP PAPER WAS SUBMITTED BEFORE THE AO OF OM WHEREAS ANOTHER JV AGREEMENT WAS GOT REGISTERED ON A STAMP PAPER S OF RS.1 000/ - TAKEN OUT BY W W ON 06.10.2005 . T HEREFORE THERE WE RE TWO JOINT VENTURE AGREEMENT S DATED 6.8.2005 I.E. ON E IS ON 36 ITA NO. 1132 AND 1133 /MUM/201 6 RS.100 STAMP PAPER AND NOT REGISTERED AND SUBMITTED BY M/S 0 M AND ANOTHER WA S REGISTERED ON E ON RS.1000 STAMP PAPER SUBMITTED BY M/S. WW BEFORE THEIR RESPECTIVE AO S . THE ASSESSEE HAS NOT SUBMITTED ANY OF SUCH AGREEMENT S . FURTHER THE UNREGISTERED J V IS DATED 16.08.2005 ON RS.100 STAMP PAPER TAKEN ON 24.6.2005 BY SHRI VIJAY B.RAHEJA BUT THE REGISTERED JV IS AFTER 16.08.2005 ON RS.I000 STAMP PAPER I.E ON DT.06.10.2005 TAKEN BY WW. THE UNREGISTERED JV IS SIGNED BY SHRI VIJAY RAHEJA DIRECTOR OF ASSESS EE WHILE THE REGISTERED JV WAS SIGNED BY ADITYA RAHEJA DIRECTOR OF ASSESSEE . THE JV AGREEMENT PROVIDED FOR VARIOUS TERMS OF AGREEMENT 'THAT FOR DEVELOPMENT OF I.T.PARK ALL THESE PARTIES HERETO HAVE DECIDED TO POOL THEIR FINANCIAL RESOURCES ESTABLISHMENT TECHNICAL TEAMS AND OTHER KNOW HOW'. THE ASSESSEE NEITHER SUBMITTED COPY OF JV AGREEMENT AS APPLICABLE FOR HIS CASE FOR THE IMPUGNED TRANSACTION NOR SUBSTANTIATE D ABOUT HOW THE OTHER TWO PARTIES SUPPLIED ANY RESOURCES FUND SERVICES EXPERTISE TECHNICA L KNOWHOW ETC. THEN AN APPLICATION FOR ALLOTMENT OF LAND WAS FILED BEFORE THE MIDC ON 18.08.2005 WHICH WAS REFERRED TO ON THE LETT ER DT.09.09.2005 .THIS LETTER IS WRITTEN BY THE JV OF ALL THE THREE PARTIES CONTAINING R E FERENCE OF APPLICATION NO. 32023. T H IS ORIGINAL APPLICATION WAS SUBMITTED BY WW BEFORE THEIR AO DID NOT BEAR THE NAME OF OM. THIS APPLICATION WAS SIGNED BY THE DIRECTOR OF WW 37 ITA NO. 1132 AND 1133 /MUM/201 6 THOUGH THE APPLICATION WAS MADE JOINTLY BY WW AND ASSESSEE PAGE NO.511 IS A LETTER DT.16.0 8 .2005 BY SHRI VIJAY RA HEJA DIRECTOR OF ASSESSEE B.R TO SHRI CHANDRAKANT M.BHANSALI DIRECTOR OF WW IN REFERENCE TO HIS MEETING DT.15.0 8 .2005 FOR SENDING RS.6000/ - IN ADVANCE IN CASH FOR THE PURPOSE OF MAKING APPLICATION JOINTLY IN THE NAME OF ASSESSEE AND WW THIS APPLICATION DT. 1 8 .0 8 .2005 IS AFTER THE UNREGISTERED JV DT. 16. 8 .2005 BUT DOES NOT BEAR T HE NAME OF OM EXPLAIN THE NATURE OF SUCH TRANSACTION AND PAPERWORK. THE ONLY RESOL UTION OF THE BOARD WAS SUBMITTED BY OM DT.15.11.2005 DESPITE THE FACT THAT ALL THE THREE CORPORA TE ENTITIES WE RE BOUND BY SUCH RESOLUTION NOT ONLY FOR JOINT VENTURE BUT ALSO FOR SUBSEQUENT SETTLEMENT ABOUT PAYMENT AND RELINQUISHMENT OF RIGHT BUT NONE OF THEM HAS GIVEN ANY SUCH RESOLUTION. IT CAN BE CONCLUDED THAT NOT ONLY THE IMPUGNED TRANSACTION IS BASED ON MAKE BELIEF PAPERS BUT ALSO GAVE BIRTH TO SEVERAL IRREGULARITIES UNDER THE C OMPAN IES ACT ALSO. THESE TRANSACTIONS ARE THEREFORE SHAM TRANSACTION. 5. 6 . THE AO VIDE LETTER DT.25.02.2013 CALLED FOR VARIOUS DETAILS U/S. 131 OF THE ACT FROM MIDC . S UCH DETAILS WERE SUPPLIED BY MIDC VIDE LETTER DT.7.05.2013 . THE AO VIDE LETTER DT.02.07.2013 SUPPLIED THESE INFORMATION TO ASSESSEE AND CALLED FOR COMMENT ON THE JOINT VENTURE AGREEMENT AS SUPPLIED BY MIDC. THE ASSESSEE VIDE LETTER DT.04.07.2013 CALLED FOR COPY 38 ITA NO. 1132 AND 1133 /MUM/201 6 OF LETTER OF MIDC DT.07.05.2013 WHICH WAS PROVIDED. AFTER SEEKING AN ADJOURNMENT VIDE LETTER DT.10.07.2013 THE ASSESSEE MADE A REPLY TO AO VIDE LETTER DT.15.07.2013 FILING THE CHRONOLOG Y OF EVENTS IN A TABULAR FORM AND SUBMITTED EXPLANATION IN RESPE CT OF THE TRANSACTION . FOLLOWING ARE THE IMPORTANT FINDINGS FROM THE DETAILS SO FURNISHED BY THE MIDC WHICH INCLUDE D FILE NOTING RELATED TO ALLOTMENT OF THE LAND. THE ASSESSEE JOINTLY WITH M / S. WW AND M / S. OM MADE AN APPLICATION DT.09.09.2005 TO JT.CEO OF MIDC FOR ALLOTMENT OF 100 ACRES LAND FOR THE DEVELOPMENT OF IT.PARK. THIS LETTER HAS REFERENCE OF ONE APPLICATION NO.32023 SUBMITTED ON 18.08.2005. NEITHER THE ASSESSEE NOR MIDC SUBMITTED THE COPY OF THIS APPLICATION. HOWEVER THIS APPLICATION IS AVAILABL E FROM THE DETAILS FILED BY WW IN THEIR ASSESSMENT FOR A.Y 2008 - 09 BEFORE THEIR AO I.E ACIT RG.18(1) NEW DELHI. THIS APPLICATION REFLECTS THAT THE SAME WAS MADE BY WW AND ASSESSEE ONLY. THE APPLICATION IS SIGNED BY SHRI C.K.BHANSALI DIRECTOR OF WW ONLY . THE AMOUNT OF EMV OF RS.5050 PAID THROUGH A BANKER CHEQUES DT.17.08.200 5 WAS IN FACT SENT BY SHRI VIJAY.V.RAHEJA IN CASH AS EVIDENT FROM THE LETTER DT.16.1 1. 200 5 ADDRESSED TO SHRI CHANDRAKANT M.BHANSALI . IN THE JOINT APPLICATION DT. 03.03.2005 IT IS ME NTIONED THAT ALL THE THREE PARTIES HAVE ENTERED INTO A JOINT VENTURE FOR DEVELOPMENT OF IT.PARK. IT IS THEREFORE CLEAR THAT THERE WAS A JOINT VENTURE AGREEMENT BEFORE 39 ITA NO. 1132 AND 1133 /MUM/201 6 09.09.2005. THE DETAILS OF E XPERIENCE OF ALL THE 3 PARTIES WE RE ALSO THERE WHICH REFLEC T THAT ONLY THE ASSESSEE WAS HAVING A PAST EXPERIENCE OF DEVELOPING AN I.T.PARK AT WHITE FIELD BANGALORE. A COMPLETE PROPOSAL OF DEVELOPMENT OF LAND WAS SUBMITTED THROUGH VARIOUS ANNEXURE WHICH ARE NOT PROVIDED BY THE MIDC. IN REFERENCE TO SUCH JOINT APPL ICATION WITH A REFERENCE TO LETTER DT.17.08.2005 09.09.2005 AND 12.09.2005 THE MIDC VIDE ITS LETTER 15.09.2005 ISSUED AN OFFER LETTER AVAILABLE AT PG.NO.166 TO 167. ONE OF THE CONDITION FOR COMPLIANCE TO ACCEPT SUCH OFFICER WAS TO FILE DOCUMENTARY EVIDEN CE S THAT THERE IS A 'JOIN T VENTURE' BETWEEN WW OM AND ASSESSEE. A COPY OF THE BOARD RESOLUTION PASSED BY THE BOARD OF DIRECTOR FOR PURCHASE OF LAND WAS ALSO CALLED FOR. THE OFFER LETTER WAS FOR 50 ACRE OF LAND @ RS.2500 PER SQ.MT. THE ASSESSEE VIDE LET TER 23.09.2005 SUBMITTED THE COMPLIANCE REPORT FOR OFFER LETTER DT. 15.09.2005. A MOU OF JV OF ALL THE THREE PARTIES AND A COPY OF BOARD RESOLUTION FOR PURCHASE OF LAND WERE FILED. IT WAS REQUESTED THAT A DEMAND NOTE MAY KINDLY BE ISSUED FOR AN AMOUNT AS OFF ER WAS ACCEPTED. THE JOINT VENTURE AGREEMENT AS SUBMITTED BY THE ASSESSEE ALONGWITH WW AND OM TO MIDC IS AVAILABLE AT PG.187 TO 200. THIS IS 'A JOINT VENTURE AND SHARE SUBSCRIPTION AGREEMENT DT.10.12.2005'. THE ASSESSEE HAS (WHEN ASKED BY THE AO BEFORE REO PENING) NOT SUBMITTED THIS AGREEMENT. OM IN THEIR ASSESSMENT FOR A.Y 40 ITA NO. 1132 AND 1133 /MUM/201 6 2008 - 09 SUBMITTED A COPY OF JV AGREEMENT DT.16.8.2005 AT POINT 3 (PB PG.189) MENTION ED ABOUT THE JV AGREEMENT DT.16.8.2005. AT POINT 4 IT IS MENTIONED THAT 'THE RAHEJA GROUP ARE THE PROMO TERS AND PVT. LTD. ('JVC OR COMPANY). THE PARTIES HAVE NOW AGREED THAT M/S. WW AND M/S.OM SHALL EACH SUBSCRIBE FOR AND ACQUIRE 125 EQUITY SHARES OF RS.100 / - EACH IN JVC SO THAT WW OM AND RAHEJA GROUP SHALL HOLD THE PAID UP EQUITY SHARE CAPITAL OF JVC I N THE RATIO 10: 10:80 WITH THE INTENTION OF MAKING ASSESSEE A JOINT VENTURE COMPANY AND TO REQUEST MIDC TO ISSUE APPROPRIATE LETTERS OF ALLOTMENT OF THE APPLIED PLOT IN FAVOUR OF JVC'. IT IS IMPORTANT TO NOTE HERE THAT EFFECT OF SHARE HOLDING WAS GIVEN BY ASSESSEE AS EVIDENT FROM AUDITED BALANCE SHEET ON 3L.03.2006. IT IS ALSO EVIDENT THAT ONLY AFTER ENTERING OF SUCH AGREEMENT DT.10.12.2006 THE PROCEEDING FOR ALLOTMENT OF LAND STARTED AS EVIDENT FROM THE ORDER SHEET NOTING OF MIDC OFFICE (PB PG.168 TO 186 ). AT PG.176 THE ORDER SHEET NOTING DT.14.12.05 REFLECT THE SUBMISSION OF 'JOINT VENTURE & SHARE SUBSCRIPTION AGREEMENT DT.10.12.2005' BY WHICH M/S.B.RAHEJA BUILDERS PVT. LTD. SHALL BE THE ' JOINT VENTURE COMPANY' AND OTHER APPLICANT I.E OM AND WW WILL AC QUIRE SHARE IN JVC I.E ASSESSEE'S COMPANY AND DEVELOP THE PLOT JOINTLY. IT IS THEREFORE RELINQUISHMENT OF ANY RIGHT IN PROPERTY BEFORE 14.12.2005 IS NOT SUPPORTED BY THIS FINDING LEADING TO A CONCLUSION OF SHAM TRANSACTION. THEREFORE NO 41 ITA NO. 1132 AND 1133 /MUM/201 6 ROLE WA S PLAYED B Y WW AND OM IN THE ENTIRE TRANSACTION FOR WHICH THEY WERE COMPENSATED WITH HUGE AMOUNT OF RS.100.8 0 CR. FURTHER SUCH COMPENSATION HAS ALREADY BEEN PAID TO THEM BEFORE THIS AGREEMENT AND ALLOTMENT OF LAND. NOWHERE THE BASIS OF SUCH AMOUNT IS PROVIDED. IT HAS BEEN CONTENDED BY THE LD AR THAT PAYMENT MADE TO WW AND OM WERE PAID BY THE BANKING CHANNEL AND DULY REFLECTED BY THOSE PARTIES AS CAPITAL RECEIPT. IT IS THEREFORE THESE TRANSACTION WERE CONSIDERED AS GENUINE WITH BUSINESS EXPEDIENCY AND ALLOWABLE. THE DR FURTHER STATED THAT QUESTION OF PAYMENT TO WW AND OM FOR A CONSIDERABLE AMOUNT OF RS.100 .80 CR. IN THE CASE OF ASSESSEE AS CONSIDERED BY AO IS RELATED TO ITS ALLOWABILITY U / S.37 (1) OF THE ACT. IT IS THEREFORE IMMATERIAL A S TO HOW WW AND OM REF LECTED THIS AMOUNT IN THEIR BOOKS. THE CONDITION FOR ALLOWABILITY OF SUCH PAYMENT IN THE CASE OF ASSESSEE HAS TO BE TESTED FOR 'WHETHER SUCH PAYMENT WAS MADE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEE'S BUSINESS'. THE AO CONSIDERED THE TRANSACT ION AS SHAM AND PAYMENT TO WW AND OM NOT FOR ANY PURPOSE OF BUSINESS. HON'BLE BOMBAY HIGH COURT WHILE DEALING WITH SEC.37 OF THE ACT HELD THAT 'ANY EXPENDITURE WHICH IS SPECIFICALLY ALLOWABLE UNDER ANY OTHER CLAUSE OF 28 TO 43 EXCEPT 37 CANNOT BE ALLOWED / CLAIM ED U/S.37 OF THE ACT . TATA SONS LTD. V / S. CIT (1950) 18 ITR 460 469 (BOMB.). IN ORDER TO CLAIM DEDUCTION OF EXPENDITURE 42 ITA NO. 1132 AND 1133 /MUM/201 6 U/S.37(1) OF THE ACT FOUR CONDITIONS MUST BE FULFILLED VIZ. ( A) THE EXPENDITURE IN QUESTION IS NOT OF THE NATURE DESCRIBED U/S 30 TO 3 6 ( B) THE EXPENDITURE IS NOT OF THE NATURE OF CAPITAL EXPENDITURE (C ) IT IS NOT A PERSONAL EXPENDITURE AND ( D) THE EXPENDITURE HAS BEEN LAID OUT OR EXPANDED WHOLLY OR E XCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. ALL CONDITIONS SIM ULTANEOUSLY SHO ULD BE SATISFIED. TO SUPPORT THESE CONTENTIONS FOLLOWING LEGAL AUTHORITIES WERE RELIED ON BY THE LD DR : A. LAXMINARAYAN MADAN LAL V/S. CIT - (1972) 86 ITR 0439 B. KILLICK NIXON LTD. V /S. DCIT - (2012) 81 CCH 0066 MUM HC C. VODAFONE INTERNATIONAL HOLDI NGS B.V V/S.UNION OF INDIA & ANR. BOMBAY HIGH COURT WRIT PETITION NO. 1325 OF 2010 DT. 8.9.10 D. SWADESHI COTTON MILLS CO. LTD. V/S CIT - (1967) 63 ITR 0057 E. CIT V IS. NAVSARI COTTON & SILK MILLS - (1982) ITR 0546 FINALLY THE LD DR PRAYED THAT IN VIE W OF FACTS AND LEGAL SUBMISSIONS CITED BY HIM THE TRANSACTION WAS JUST A MAKE BELIEF ARRANGEMENT AND WAS A SHAM TRANSACTION NOT ENTERED INTO FOR THE BUSINESS OF THE ASSESSEE WHOLLY AND EXCLUSIVELY AND THEREFORE WAS RIGHTLY REJECTED BY THE LOWER AUTHORITIE S. 5. 7 . IN THE REBUTTAL THE LD AR SUBMITTED THAT THE FACTS OF THE DECISIONS RELIED ON BY THE LD DR ARE CLEARLY DISTINGUISHABLE ON FACT S AND THEREFORE NOT APPLICABLE. IN THE CASE OF KILLICK NIXON LTD VS DCIT 2012 81 CCH 0066 THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHERE A TRANSACTION IS A SHAM AND NOT GENUINE THEN IT CANNOT BE CONSIDERED TO BE PART OF TAX PLANNING OR 43 ITA NO. 1132 AND 1133 /MUM/201 6 LEGITIMATE AVOIDANCE OF TAX LIABILITY. IN THE CASE OF THE ASSESS EE IT IS NOT A SHAM TRANSACTION AS THE RECEIPTS WERE ASSESSED IN THE HAND S OF RECIPIENTS AND NOT DOUBTED. THE AR FINALLY SUBMITTED THAT THE DECISIONS RELIED UPON BY THE LD D R ARE NOT BE APPLI CABLE TO THE ASSESSEES CASE AS THEY ARE RENDERED OR PRONOUNCED ON DIFFERENT SET OF FACTS AND CIRCUMSTANCES. THUS TRANSACTION CANNOT BE REGARDED AS SHAM AND NON GENUINE . HENCE THE DISALLOWANCE MADE BY THE AO IS PRAYED TO BE DELETED. 5. 8 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE RELEVANT RECORDS PLACED BEFORE US INCLUDING CASE LAWS CITED BY THE PARTIES . T HE UNDISPUTED FACT S ARE THAT THE LAND MEASURING 50 ACRES WAS ALLOTTED TO ASSESSEE AND TWO OTHER JV PARTNERS O M AND W W BY MIDC UPON A PAYMENT OF RS. RS.50 58 62 500/ - . T HE JV PARTNERS DECIDED TO SURRENDER THEIR INTEREST IN THE LAND IN FAVOUR OF THE ASSESSEE UPON A PAYMENT OF 100.80 CR . THE NECESSARY SANCTION FOR THE SAID TRANSACTION WAS OBTAIN ED FROM MIDC. THE ASSESSEE ACCOUNTED AND PROVIDED FOR THE TRANSACTION IN ITS BOOKS OF ACCOUNTS AS ON 31.3.2006 BY INCREASING THE COST OF LAND/INVENTORIES AND CORRESPONDINGLY CREDITING THE TWO JV PARTNERS WITH RS. 50.40 CR EACH AND SHOWING THE REMAINING PAYABLE AT THE YEAR END UNDER THE HEAD SUNDRY CREDITORS. THE TRANSACTION WAS ACCEPTED BY THE AO DURING THE SCRUTINY PROCEEDINGS AFTER RAISING SPECIFIC QUERY WHICH WAS REPLIED BY THE AS SESSEE 44 ITA NO. 1132 AND 1133 /MUM/201 6 BY FILING THE DETAILS OF INVENTORIES AND SUNDRY CREDITORS AND IT WAS ONLY AFTER SATISFYING HIMSELF THE AO FRAMED ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 22.12.2008. IN THE MEAN TIME THE ASSESSMENT OF OM WAS COMPLETED FOR THE ASSESSMENT Y EAR 2008 - 09 IN DECEMBER 2010 IN JAIPUR APPROXIMATELY TWO YEARS AFTER THE COMPLETION OF ASSESSMENT OF THE ASSESSEE AND THE AO AT JAIPUR FORWARDED COPY OF THE ASSESSMENT ORDER WITH RELEVANT ANNEXURE S TO THE AO OF THE ASSESSEE. THEREAFTER THE AO ALSO SOUGHT THE DETAILS OF THE TRANSACTION FROM THE ASSESSEE VIDE LETTER DATED 19.05.2010 AND RE - OPENED THE CASE OF THE ASSESSEE BY ISSUING NOTICE U/S 148 OF THE ACT ON 25.05.2012 AFTER FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR . IN THE FI R ST PARA OF T HE REASONS RECORDED BY THE AO HE ADMITTED THAT THE ASSESSEE VIDE LETTER DATED 18.10.20 08 SUPPLIED THE DETAILS OF SUNDRY CREDITORS. THEREAFTER T HE AO WHILE FRAMING ORDER U/S 143(3) R.W.S. 148 OF THE ACT REDUCED THE INVENTORIES OF THE ASSESSEE BY RS. 100.8 0 CR ON THE GROUND THAT THE TRANSACTION WAS A SHAM AND NON GENUINE DESPITE THE FACT THE SAME TRANSACTION WAS TREATED AS GENUINE IN THE HAND S OF OM AND W W THE TWO JV PARTNERS TO WHOM THE ASSESSEE PAID RS. 50.40 CR EACH FOR ACQUIRING THE INTEREST IN THE LAN D. IN THE CASE OF OM THE RECEIPT FROM THE ASSESSEE WAS TREATED AS CAPITAL RECEIPT BUT THE SAME WAS TREATED AS REVENUE RECEIPTS BY THE AO IN THE ASSESSMENT FRAMED U/S 45 ITA NO. 1132 AND 1133 /MUM/201 6 143(3) OF THE ACT WHICH WAS ACCEPTED BY OM AND PAID DUE TAXES THEREON. IN THE CASE OF THE W W THE MONEY RECEIVED FROM THE ASSESSEE WAS TREATED AS CAPITAL RECEIPT AND MAT WAS PAID THEREON . T HE AO ACCEPTED THE SAME IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT HOWEVER THE CIT INVOKED REVISIONARY JURISDICTION U/S 263 OF THE ACT WHICH ST OOD QU ASHED BY THE ITAT. IN OTHER WORDS THE AMOUNTS PAID BY THE ASSESSEE TO OM AND WW W ERE TAXED IN THE IR HANDS AS GENUINE TRANSACTION BY THE DEPTT . IT IS DIFFICULT TO UNDERSTAND THAT WHEN THE REVENUE TREATED THE TRANSACTION AS GENUINE IN THE HAND S OF TWO JV P ARTNERS HOW THE SAME TRANSACTION CAN BE NON GENUINE AND SHAM IN THE HANDS OF THE ASSESSEE. MOREOVER THE CHRONOLOGY OF EVENTS CLEARLY SHOW S THAT THE APPLICATION WAS MADE IN THE JOINT NAME S OF THE ASSESSEE OM AND WW. T HE LAND WAS ALSO ALLOTTED BY MID C ON THE SAID APPLICATION MADE BY THE THREE JOINT VENTURE PARTNER S . THEREAFTER MIDC ON AN APPLICATION MADE BY THE JV PARTNERS APPROVED THE RELINQUISHMENT OF INTEREST IN THE SAID LAND BY TWO JB PARTNERS OM AND WW IN FAVOUR OF THE ASSESSEE ON PAYMENT OF SPECIF IED PREMIUM. IT IS RELEVANT TO NOTE THAT RECORDS OF MIDC PROVED THAT THE ASSESSEE OM AND WW WERE THE JOINT OWNERS OF THE PLOT OF LAND TILL THE RELINQUISHMENT OF RIGHTS BY OM AND WW WAS APPROVED BY MIDC WHICH SHOW ED THE TRANSACTION BEING GENUINE AND OUT OF BUSINESS CONSIDERATION . A BUSINESS DECISION WAS TAKEN 46 ITA NO. 1132 AND 1133 /MUM/201 6 BY THE ASSESSEE TO PURCHASE THE INTEREST FROM TWO JV PARTNERS TO WHICH TWO PARTNERS ALSO AGREED TO SELL THEIR INTEREST TO THE ASSESSEE WHICH IS ALSO A BUSINESS DECISION TAKEN BY THEM IN THE BEST I NTEREST OF THE BUSINESS. MOREOVER ALL THE THREE PARTIES ARE UNRELATED PARTIES AND NOT RELATED TO EACH OTHER. THEREFORE THE TRANSACTION CAN NOT BE SAID TO BE NON GENUINE AND SHAM. FURTHER W E FAILED TO UNDERSTAND AS TO HOW A TRANSACTION WHICH IS ASSESSED TO TAX IN THE HANDS OF TWO JV PARTNERS BY THE REVENUE TREATING THE SAME AS GENUINE WAS TREATED AS SHAM IN THE HANDS OF ASSESSEE. IN OUR CONSIDERED VIEW THE ASSESSEE HAS ENTERED INTO THE TRANSACTION OF PURCHASING THE INTEREST IN THE LAND FROM THE SAID TWO PART IES AND AFTER PURCHASE BECAME THE EXCLUSIVE OWNER OF THE SAID LAND AND THEREFORE THE SAID EXPENDITURE IS WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND SHOULD BE ALLOWED TO THE ASSESSEE. BESIDE T HE INVOLVEMENT OF MULTIPLE AGENCIES INCLU DING GOVT AUTHORITIES LIKE MIDC AND AOS OF OM AND WW PROFESSIONAL CONSULTANTS AND ESCROW AGENTS SPECIAL LY WHEN NONE OF THEM WERE RELATE D TO EACH OTHER FURTHER LEND S CREDENCE TO THE CONTENTION OF THE LD AR. THE MERE IRREGULARITIES IN THE DOCUMENTS AS POI NTED BY THE LD DR CAN NOT BE THE BASIS TO DRAW CONCLUSION AS TO GENUINENESS OF THE TRANSACTION. SO FAR AS THE REASONABLENESS OF THE TRANSACTION IS CONCERNED THE VALUATION BY THE REGISTERED VALUER AND THE 47 ITA NO. 1132 AND 1133 /MUM/201 6 DVO WERE LARGELY SAME AND CAN NOT BE IGNORED AND LOST SIGHT OF WHILE DECIDING REASONABLENESS OF THE TRANSACTION. AFTER CONSIDERING THE RIVAL CONTENTIONS RECORDS WRITTEN SUBMISSIONS AND CASE LAWS FILED BY BOTH THE PARTIES WE ARE OF THE VIEW THAT THE ORDER OF PCIT UPHOLDING THE ORDER OF AO TREATING THE PURCHASE OF INTEREST IN THE LAND FROM OM A N D WW AS SHAM IS INCORRECT AND CAN NOT BE SUSTAINED. THE DECISIONS RELIED BY THE REVENUE ARE ALSO DISTINGUISHABLE ON FACTS AND THEREFORE NOT APPLICABLE. IN VIEW OF THE ABOVE DISCUSSIONS WE SET ASIDE THE ORDER OF PCIT ON THIS ISSUE AND ACCORDINGLY APPEAL OF THE ASSESSEE IS ALLOWED. AO IS DIRECTED ACCORDINGLY. 6. THE ISSUE RAISED IN GROUND NO 3 IS AGAINST THE UPHOLDING OF DISALLOWANCE OF INTEREST PAID ON THE BORROWINGS TAKEN FOR PAYMENT TO WW AND OM AS DONE BY T HE AO BY REDUCING THE COST OF INVENTORIES. 6.1. SINCE WE HAVE DECIDED THE GROUND NO 2 IN FAVOUR OF THE ASSESSEE HOLDING THE TRANSACTION TO BE TRUE ON THE GROUND THAT THE SAME TRANSACTION WHICH WAS TREATED AS GENUINE IN THE HANDS OF BOTH THE JB PARTNERS N AMELY WW AND OM THE SAME CAN NOT BE HELD TO BE NON GENUINE AND SHAM IN THE HANDS OF ASSESSEE. IN VIEW OF THE SAID FINDING S ANY INTEREST WHICH THE ASSESSEE HAS INCURRED ON THE MONEY BORROWED HAS TO BE ALLOWED TO THE ASSESSEE AND ACCORDINGLY WE DIRECT THE A O TO DELETE THE DISALLOWANCE. 48 ITA NO. 1132 AND 1133 /MUM/201 6 THE GROUND NO 3 IS ALLOWED. ITA NO.113 2 /MUM/2016 & ITA NO.113 3 /MUM/2016 7. THE ISSUES RAISED BY THE ASSESSEE IN THESE APPEALS ARE IDENTICAL AS HAVE BEEN DECIDED BY THE US IN ITA NO. 113 7 /MUM/2016. THEREFORE OUR DECISION IN ITA NO.113 7 /MUM/20146 WOULD MUTATIS MUTANDIS APPLY TO THESE APPEALS AS WELL. ACCORDINGLY THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 8 . IN THE RESULT THE APPEAL S OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10TH NOV 2017. S D / - SD / - (C.N. PRASAD) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 10TH NOV .2017 SRL SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE PCIT 4. / CIT CONCERNED 5. / DR ITAT MUMBAI 6. / GUARD F ILE / BY ORDER TRUE COPY / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI