M/s. Eagle Theatrs, New Delhi v. DCIT, New Delhi

ITA 3008/DEL/2010 | 2007-2008
Pronouncement Date: 31-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 300820114 RSA 2010
Assessee PAN AAAFE2646N
Bench Delhi
Appeal Number ITA 3008/DEL/2010
Duration Of Justice 7 month(s) 15 day(s)
Appellant M/s. Eagle Theatrs, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 31-01-2011
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2007-2008
Appeal Filed On 15-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL JUDICIAL MEMBER ITA NO.3008/DEL/2010 ASSESSMENT YEAR : 2007-08 M/S EAGLE THEATRES H-10 PLAZA CINEMA CONNAUGHT PLACE NEW DELHI. PAN : AAAFE2646N VS. DCIT CIRCLE 31 (1) CR BUILDING IP ESTATE NEW DELHI. ITA NO.3370/DEL/2010 ASSESSMENT YEAR : 2007-08 ACIT CIRCLE 31 (1) CR BUILDING IP ESTATE NEW DELHI. M/S EAGLE THEATRES H-10 PLAZA CINEMA CONNAUGHT PLACE NEW DELHI. PAN : AAAFE2646N (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI BALJIT SINGH CA REVENUE BY : SHRI R.P. SINGH SR. DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THESE ARE CROSS APPEALS. THEY ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 30 TH APRIL 2010 FOR ASSESSMENT YEAR 2007- 08. GROUNDS OF APPEAL READ AS UNDER:- ASSESSEES APPEAL 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN CONFIRMING THE ACTION OF THE LD. A .O. ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 2 CIT (A) ERRED IN CONFIRMING THE ACTION OF THE LD. A .O. ADJUDGING THE VALUE OF THE BUILDING STRUCTURE AT RS.32 70 000/- ON PRESUMPTIVE BASIS. 2. THE ORDER OF THE LD. CIT (A) IS BAD IN LAW AND O N THE FACTS OF THE CASE AND IS BASED ON SURMISES AND CONJECTURES ONLY. 3. THAT WE BE ALLOWED TO ADD FRESH GROUNDS OF APPEAL AT THE TIME OF HEARING. 4. THE APPELLANT PRAYS THAT THE ADDITION BE DELETED . REVENUES APPEAL ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN ALLOWING THE CLAIM OF RS.1.48 CRORES ON ACCOUNT OF TENANCY RIGHTS WITHOUT APPRECIATING THE OBSERVATIONS OF THE ASSESSING OFFICER ABOUT THE BONA FIDE OF THE TENANCY IN ABSENCE OF COGENT PROOF FOR THE SAME. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN HOLDING THAT PAYMENT FOR VACATI ON OF TENANCY RIGHTS CONSTITUTES COST OF IMPROVEMENT AS PER PROVISIONS OF SECTION 48. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN DELETING AN ADDITION OF RS.66 88 679/- MADE BY THE A.O. ON ACCOUNT OF ONE TIME PAYMENT MADE TO ITS EMPLOYEES FOR THE CLOSURE OF BUSINESS OF CINEMA HALL. THE LD. CIT (A) HAS FURTHER ERRED BY ACCEPTING FRESH EVIDENCES IN THE FORM OF AGREEMENT WITH TRADE UNION COPY OF RECEIPTS FROM VARIOUS EMPLOYEES WHICH IS A DIRECT CONTRAVENTION OF RULE 46A. 2. THE ASSESSEE FIRM OWNED TWO PROPERTIES NAMELY PLAZA CINEMA NEW DELHI AND MINERVA CINEMA MUMBAI AND IT IS MENTI ONED IN THE ASSESSMENT ORDER THAT IT DERIVES INCOME FROM EXHIBITION OF FILMS IN MUMBAI AND INCOME FROM PROPERTY IN NEW DELHI. THE ASSESSEE MAINTAINS SEPARATE BOOKS IN RESPECT OF DELHI AND MUMBAI . DURING THE YEAR UNDER CONSIDERATION MINERVA CINEMA SITUATED AT MUMBAI WAS ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 3 SOLD FROM WHERE APART FROM SHOWING THE BUSINESS INCOME THE ASSESSEE HAS ALSO DECLARED INCOME FROM CAPITAL GAIN. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE SALE INCLUDED LAND AND C INEMA HOUSE BUILDING INCLUDING BASEMENT GROUND FOUR UPPER FLOO RS AND AUDITORIUM WHICH WERE MENTIONED IN SALE DEED DATED 6 TH JULY 2006 AND SALE CONSIDERATION WAS SHOWN AT ` 27 70 00 000/-. IN THE SA LE DEED THE ASSESSEE MENTIONED THAT ` 15 LAC IS FOR FURNITURE FIXT URES EQUIPMENT AND AC PLANT ALSO. ACCORDING TO THE ASSESSING OFFICER THE PROPERTY SOLD CONSISTED OF THREE ITEMS NAMELY LAND THE SUPER ST RUCTURE CONSTRUCTED OVER IT AND FURNITURE AND FIXTURES ETC. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD BEEN CLAIMING DEP RECIATION ON THE CONSTRUCTED BUILDING/SUPER STRUCTURE AS WELL AS ON T HE FURNITURE FIXTURES EQUIPMENTS ETC. THE SALE CONSIDERATION OF L AND WAS TO BE TAXED AS LONG-TERM CAPITAL GAIN (LTCG) (SINCE THE PRO PERTY WAS OWNED EVEN PRIOR TO 1 ST APRIL 1981) AND THE SALE CONSIDERATION REGARDING TH E BUILDING/SUPER STRUCTURE AND FURNITURE AND FIXTURES E TC. WAS TO BE TAXED AS SHORT-TERM CAPITAL GAIN (STCG) U/S 50 OF THE INCOME-TAX ACT 1961 (THE ACT). THE ASSESSING OFFICER FURTHER OBSERVED THAT THE SALE DEED WAS ABSOLUTELY SILENT ON THE AMOUNT OF SALE CONSIDE RATION TAKEN FOR SALE OF BUILDING/SUPER STRUCTURE AND HE NOTED THAT IN THE COMPUTATION OF INCOME FILED BY THE ASSESSEE THE SALE CON SIDERATION FOR BUILDING/SUPER STRUCTURE WAS ADOPTED AT ` 1 LAC. HE A LSO NOTICED THAT CONSTRUCTED PORTION OF THE SAID BUILDING WAS USED WHICH INCLUDED AUDITORIUMS AND CONSTRUCTION OF BASEMENT GROUND FLOOR AND FOUR UPPER FLOORS ETC. THEREFORE IN THE ABSENCE OF ANY INFORM ATION TO BE PROVIDED BY THE ASSESSEE THE ASSESSING OFFICER HAS ESTIMATED THE SALE CONSIDERATION TO BE A APPORTIONED FOR BUILDING/SUPER STRUCTURE/CONSTRUCTED AREA AT ESTIMATED PRICE. HE OBSER VED THAT IN A CASE WHEN OLD HOUSE OF ABOUT 200 SQ. YARD CONSTRUCTED W ITH TWO STORIES IS SOLD THE SALVAGE (BRICKS IRON AND STEEL AND WOOD) STANDS VERY EASILY SOLD FOR AN AD HOC AMOUNT OF ` 3 LAC AND BASED ON THAT ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 4 CALCULATION THAT THE CONSTRUCTED AREA OF 200 SQ. YARD WITH A PERMISSION OF CONSTRUCTION OF 60% WILL AMOUNT TO 2340 SQ. FT. AN D IF SUCH SALVAGE OF THE CONSTRUCTION IS SOLD FOR ` 3 LAC IT WILL FETCH ` 128 PER SQ. FT. BUT TAKING A LENIENT VIEW THE ASSESSING OFFICER ESTIMATED T HE SALVAGE VALUE OF MATERIAL @ ` 100 PER SQ. FT AND CALCULATED THE SALVAGE VALUE OF THE BUILDING/SUPER STRUCTURE AT ` 32 70 000/- AGAINST ` 1 LAC CONSIDERED BY THE ASSESSEE. AS DEPRECIATED VALUE OF THE BUILDING C ONSTRUCTED WAS TAKEN BY THE ASSESSEE AT ` 70 085/- HENCE HE HAS ASSESSED THE SHORT- TERM CAPITAL GAIN ON THAT PORTION AT ` 31 99 915/-. 3. THE MATTER WAS CARRIED BEFORE THE CIT (A) BEFORE WHOM DETAILED SUBMISSIONS WERE FILED. IT WAS SUBMITTED THAT THE SALVAGE VALUE WAS TAKEN BY THE ASSESSING OFFICER ON THE BASIS OF A NORMAL RESIDENTIAL DOUBLE STORIED HOUSE AS AGAINST THAT THE SAID THEATRE W AS A VERY OLD BUILDING OF MORE THAN 40 YEARS AND IT HAD ONLY A SCRA P VALUE FOR THE BUYER OF THE PREMISES WHO HAS PURCHASED IT TO DEMOLISH T HE OLD BUILDING AND FOR CONSTRUCTION OF NEW COMMERCIAL PREM ISES. THE PROPERTY WAS OLD AND WAS IN A DILAPIDATED CONDITION THEREFORE DID NOT HAVE THE VALUE AS HIGH AS ` 128 PER SQ. FT AND ON TH E OTHER HAND THE BUYER WAS TO PAY TO THE MUNICIPAL CORPORATION OR TO SOME PRIVATE CONTRACTOR TO REMOVE THE OLD DEBRIS AND THUS THE AC TION OF THE ASSESSING OFFICER FOR TAKING THE SAID VALUE AT ` 32.70 L AC WAS ASSAILED. THE LD. CIT (A) WHILE CONSIDERING THESE SUBMISSIONS OBSERV ED THAT THE ASSESSEE HAS FURNISHED NO COGENT BASIS BEHIND ADOPTING A N OMINAL SUM OF ` 1 LAC OUT OF TOTAL SALE PROCEEDS AT ` 27.70 C RORES. AS AGAINST THAT THE ASSESSING OFFICER BEING NOT SATISFIED WITH THE SA ID VALUE OF THE SALE PROCEEDS OF THE BUILDING BY TAKING SALVAGE VALUE @ ` 100 SQ. FT. IN RESPECT OF BUILDING AND SUPER STRUCTURE AND MULTIPLIED THE SAME WITH THE TOTAL CONSTRUCTION AREA OF 32707 SQ. FT. AND ESTIM ATED AN AMOUNT OF ` 32.70 LAC TOWARDS THE SALE OF BUILDING AND SUPER STRU CTURE. LD. CIT (A) HAS OBSERVED THAT A CAREFUL PERUSAL OF THE DEED OF CONVEYANCE ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 5 DATED 6 TH JULY 2006 WOULD REVEAL THAT THE SAID DEED WAS IN RE SPECT OF ALL THAT PIECE OR PARCEL OR FREE HOLD LAND OR GROUN D OR FORAS TENURE BEING ODASTRAL SURVEY NO.80 AND COLLECTORS NEW NO.139 63 OF TARDEO DIVISION SITUATED AT 186 DR. DADA SAHEB BHADKAMKER M ARG MUMBAI 400 007 TOGETHER WITH MESSAUGES AND TENEMENTS STANDING T HEREON BEING AN OPERATING AS A FULLY LICENSED CINEMA HOUSE BY THE NAME OF KNOWN AS MINERVA THEATRE PROPERTY FORMERLY KNOWN AS E MPRESS THEATRE KNOWN AS CREDENCE STREET AND THEREIN UNDER TH E SAID INDENTURE KNOWN AS LAMINGTON ROAD WITHOUT THE FORT IN THE ISLAN D OF BOMBAY IN THE SUB REGISTRATION DISTRICT BOMBAY AT MEASURING 17757 SQ. FT. OR WHEREABOUTS WITH THE RIGHT OF WAY OF 26 FT. IN WIDTH AND 151 IN LENGTH THAT IS ABOUT 436 SQ. YARDS OR THEREABOUTS THE SOLD TEN EMENTS AND CINEMA HALLS CONSISTING OF BASEMENT GROUND PLUS FOUR U PPER FLOOR MEASURING APPROX. 23676 SQ. FT. BUILT UP AREA BASEMENT AND GROUND FLOOR STILTS AREA AT MEASURING 23676 SQ. FT. BUILT UP A REA AND BASEMENT AND GROUND FLOOR STILTS AREA AT MEASURING 90317 SQ. FT. BUILT UP AND THE SAID PLOT OF LAND WITH THE TENEMENTS. IT WAS OBSERVED BY HIM THAT THE SAID PROPERTY WAS MORE PARTICULARLY DESCRIBED IN THE F IRST SCHEDULE OF THE ABOVE DEED BY WHICH THE PROPERTY HAS BEEN DEFINE D AS MINERVA THEATRE PROPERTY. HE ALSO FOUND THAT SPECIFICALLY T HE SAID CINEMA WAS RUN BY THE ASSESSEE VIDE AGREEMENT DATED 24 TH JULY 2006 AND HAS EARNED TOTAL RECEIPT OF ` 71 86 695/- FOR THE PERIO D FROM 14 TH JULY 2006 TO 31 ST DECEMBER 2006 AND TAKING NOTE OF ALL THESE FACTS H E OBSERVED THAT THERE IS NO FORE IN THE ARGUMENTS OF THE ASSESSEE TH AT THE DEED OF CONVEYANCE DATED 6 TH JULY 2006 WAS ONLY FOR THE PURPOSE OF COMMERCIAL EXPLOITATION OF THE SAID PROPERTY BY DEMO LISHING THE SAME AND FOR NO OTHER PURPOSE. HE OBSERVED THAT THERE MAY HAVE BEEN UNDERLYING INTENTION OF THE PROSPECTIVE BUYERS FOR DE MOLISHING AND MAKING COMMERCIAL USE OF THE SAID PROPERTY BY NEW CON STRUCTION WHICH IS SUBSTANTIATED BY THE FACT THAT AFTER 31 ST DECEMBER 2006 THE CINEMA DID NOT OPERATE. TAKING NOTE OF THE CONVEYANCE DEE D DATED 6 TH JULY ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 6 2006 AND FURTHER AGREEMENT DATED 24 TH JULY 2006 LEARNED CIT (A) HAS OBSERVED THAT WHAT WAS ACTUALLY SOLD WAS NOT ONLY THE SP ECIFIED PLOT OF LAND BUT ALSO THE TENEMENTS AND BUILDING THEREON WHIC H HAS BEEN SPECIFICALLY DEFINED IN THAT CONVEYANCE DEED AS CINE MA HALLS. EARNING OF ` 71.86 LAC FOR A SMALL PERIOD WAS NOT AN INSIGNIFI CANT AMOUNT AND THEREFORE THE SALE DEED CANNOT BE SAID TO BE FOR THE PURPOSE OF SALE OF LAND ALONE AND IT WAS FOR THE CINEMA HALL AND THE SAL E OF BUILDING AND SUPER STRUCTURE ALSO. HE ALSO REJECTED THE CONTENTION OF THE ASSESSEE THAT ` 1 LAC WAS THE APPROPRIATE AMOUNT TO BE CONSIDE RED AS SALVAGE VALUE OUT OF THE SALE CONSIDERATION AS THE BUILDING AN D CINEMA HALL COULD NOT BE WORTH ONLY OF ` 1 LAC. HE OBSERVED THA T THE ASSESSING OFFICER HAS TAKEN A LIBERAL VIEW BY TAKING SALVAGE VA LUE ONLY AT ` 100 PER SQ. FT EVEN IF THE BUILDING ALONG WITH SOME STRUCT URE WAS A SPECIALIZED BUILDING DESIGNED TO OPERATE AS CINEMA HAL L. A SUM OF ` 32.70 LAC WAS THE POSSIBLE SALVAGE VALUE OF THE BUILDIN G AND SUPER STRUCTURE OF CINEMA HALL WHICH CONSTITUTE BARELY 1.2% OF THE TOTAL SALE CONSIDERATION AND THUS HE HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE. THE ASSESSEE IS AGGRIEVED HENCE HAS RAISED THE AFOREMENTIONED GROUND IN ITS APPEAL. 4. AFTER NARRATING THE FACTS LEARNED AR VEHEMENTLY PLEADED THAT THE INTENTION OF THE PURCHASER WAS TO ACQUIRE THE PIE CE OF LAND UNDER CONSTRUCTION OF CINEMA HALL AND THE BUYER HAS ULTIMAT ELY DEMOLISHED THE STRUCTURE TO MAKE IT APPROPRIATE FOR COMMERCIAL USE AND THUS THE VALUE OF THE BUILDING WAS IMMATERIAL AND WHAT WAS MA TERIAL WAS THE LAND VALUE. THE BUILDING WHICH WAS OLD AND IN A DIL APIDATED CONDITION COULD NOT BE USED FOR ANY OTHER PURPOSE. RATHER IF ANYBODY WANT TO REMOVE THE DEBRIS OF DEMOLISHED CONSTRUCTION THEN IT HAS TO PAY EITHER TO THE MUNICIPAL CORPORATION OR PRIVATE CONT RACTOR TO REMOVE THE DEBRIS FROM THE PREMISES AND THE BUYER WILL NOT GET AN Y VALUE OF THE MATERIAL OF THE DEMOLISHED CONSTRUCTION. HE REFERRED TO PAGE 20 AND ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 7 21 OF THE PAPER BOOK TO CONTEND THAT LATER ON THE B UILDINGS WERE DEMOLISHED. THESE ARE ACCORDING TO HIM THE PHOTOGRA PHS OF SITE AFTER DEMOLITION OF SUPER STRUCTURE. HE CONTENDED THAT BY N O STRETCH OF IMAGINATION THE SALVAGE VALUE OF THE DEMOLISHED MATER IAL COULD BE TAKEN AS HIGH AS TAKEN BY THE ASSESSING OFFICER AT ` 100 PR SQ. FT. HE SUBMITTED THAT THE ASSESSING OFFICER HAS ESTIMATED THE VAL UE OF SALVAGE MATERIAL ON THE BASIS OF PRESUMPTION OF SALE OF TWO-STOREY HOUSE OF 200 SQ. YRD WHEREAS THERE IS NO COMPARISON OF T HE HOUSE WITH THE BUILDING OF CINEMA WHICH CONSISTED OF ONLY A HALL WITHOUT HAVING THE INNER PORTIONS AS FOUND IN TWO-STOREY HOUSE. RELYI NG UPON THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT (A) LEARNED AR PLEADED THAT THE VIEW STAND TAKEN BY THE ASSESSEE OF ESTIMATING THE VALUE OF SALVAGE MATERIAL OF BUILDING AT ` 1 LAC SHOULD BE APPROVED AND THE ADDITION UPHELD BY THE CIT (A) SHOU LD BE DELETED. 5. ON THE OTHER HAND LD. DR SUBMITTED THAT THE ASSESSEE HAS SUBMITTED NO BASIS WHATSOEVER FOR ESTIMATING ONLY ` 1 LA C FOR THE CONSTRUCTED PORTION OF THE BUILDING. HE CONTENDED T HAT THE ASSESSEE HAS SOLD A CONSOLIDATED ASSET WHICH COMPRISED OF LAND AND BUILDING. HE SUBMITTED THAT THERE IS NO DOUBT THAT THE LAND WIL L FETCH MUCH PRICE BUT AT THE SAME TIME CONSTRUCTED SUPER STRUCTURE WILL HAVE ONLY A VALUE OF ` 1 LAC IS ALSO NOT A VIEW SUBSTANTIATED BY AN Y EVIDENCE. HE CONTENDED THAT THE ASSESSING OFFICER HAS TAKEN A VERY FA IR ESTIMATE AND HAS GIVEN ALSO THE BASIS TO ARRIVE AT THE FIGURE OF ` 32.70 LAC. RELYING UPON THE ORDER OF ASSESSING OFFICER AND CIT (A) HE SUBMITTED THAT THE ADDITION HAS RIGHTLY BEEN UPHELD BY CIT (A) AND THIS GROUND OF THE ASSESSEE SHOULD BE DISMISSED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY GO NE THROUGH THE DOCUMENTS SUBMITTED BY THE ASSESSEE IN THE PAPER BOOK AND REFERRED BY THE LEARNED AR BEFORE US. WE HAVE ALSO CAREFULLY GONE THROUGH THE ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 8 ORDERS OF THE ASSESSING OFFICER AND CIT (A). THOUGH IT HAS BEEN THE CONTENTION OF THE ASSESSEE THAT ` 1 LAC HAS BEEN PROPERL Y APPORTIONED BY THE ASSESSEE TOWARDS SCRAP VALUE OF THE SUPERSTRUCTURE O UT OF THE TOTAL SALE CONSIDERATION OF ` 27.70 CRORE BUT IT IS SEEN THAT THE ASSESSEE HAS GIVEN NO BASIS WHATSOEVER FOR SHOWING ONLY ` 1 LAC TOWARDS BUILDING AND SUPER STRUCTURE. THE ASSESSEE HAS SOLD THE CONSOLIDATED ASSET AND BUILDING WHEN IT WAS SOLD CAN NOT BE SAID TO BE SCRAP ONLY. THE BUYER MAY FOR HIS PURPOSES CONTINU E TO CARRY ON BUSINESS IN THE SAID PREMISES OR MAY DEMOLISH IT. HERE IT IS A FACT EXISTING ON RECORD THAT EVEN AFTER SALE THE PREMISES W ERE UTILIZED BY THE ASSESSEE AS CONDUCTOR ON BEHALF OF THE BUYER OF THE ASSET AND HAS EARNED A SUBSTANTIAL AMOUNT DURING THAT SHORT PERIOD O F ABOUT SIX MONTHS. THUS IT CANNOT BE SAID THAT THE BUILDING WAS IN A DILAPIDATED CONDITION AND COULD NOT BE USED AS SUCH. THEREFORE I T CANNOT BE SAID THAT WHILE APPORTIONING THE CONSOLIDATED SALE PRICE B ETWEEN THE LAND AND BUILDING ONLY A SUM OF ` 1 LAC OUT OF TOTAL CONSI DERATION OF ` 27.70 CRORE IS A PROPER ALLOCATION TOWARDS BUILDING AND SUPE R STRUCTURE. THOUGH IT HAS BEEN THE CONTENTION OF LD. AR THAT THE BUYER HAS TO PAY EITHER TO THE MUNICIPAL CORPORATION OR TO THE CONTR ACTOR TO REMOVE THE DEBRIS FROM THE SITE BUT THIS ARGUMENT IS NOT SUPPORTED BY ANY MATERIAL WHATSOEVER. THE CONSTRUCTED AREA OF THE BUI LDING AS STATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AT 32 707 SQ. FT. HAS NOT BEEN CONTROVERTED BY THE ASSESSEE. SO MUCH CONSTRUC TION MATERIAL EVEN IF IT IS CONSIDERED AS SCRAP CANNOT BE VALUED MERELY AT ` 1 LAC. THUS THERE IS NO SUBSTANCE IN THE CONTENTION OF LD. AR THAT THE ESTIMATE OF THE ASSESSEE IN THIS REGARD SHOULD BE ACCEPTED PARTICULARLY WHEN NO DOCUMENT OR EVIDENCE HAS BEEN SUBMITTED TO SUP PORT SUCH ESTIMATION. THE ASSESSING OFFICER HAS CLEARLY BROUGHT OU T THAT THE SCRAP VALUE OF A 200 SQ. YARD RESIDENTIAL BUILDING WIL L BE AROUND ` 3 LAC. THUS HE HAS CALCULATED THE VALUE AT ` 128/- PER SQ. F T AND BY TAKING A LENIENT VIEW HE HAS ADOPTED THE VALUE OF ` 100/- PER SQ. FT. KEEPING IN ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 9 VIEW THE ENTIRETY OF THE FACTS AND TAKING INTO CONSID ERATION THE SUBMISSIONS OF THE ASSESSEE WE ESTIMATE THE SALE VALUE OF SUC H SCRAP MATERIAL AT ` 50/- SQ. FT. AND THUS THE SALE VALUE O F THE BUILDING/SUPER STRUCTURE IS ESTIMATED AT ` 16 35 000/- IN PLACE OF ` 32 70 000/-. THE ASSESSING OFFICER WILL CALCULATE THE SHORT-TERM CAPITAL GAINS ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IN ITS AP PEAL IS PARTLY ALLOWED IN THE MANNER AFORESAID. 7. NOW COMING TO THE DEPARTMENTAL APPEAL THE FIRST ISSUE RAISED IN THE DEPARTMENTAL APPEAL IS REGARDING A SUM OF ` 1 48 00 000/-. THIS ISSUE HAS BEEN DISCUSSED BY THE ASSESSING OFFICER AT PAGE 3 O F THE ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED THE SAID AMOUNT BEING IN THE NATURE OF COST OF IMPROVEMENT. THE ASSESSEE IN SUPPO RT OF ITS CLAIM HAS FURNISHED COPY OF AGREEMENT DATED 25 TH APRIL 2006 BETWEEN THE ASSESSEE AND ITS TENANT NAMELY M/S MINERVA REFRESHME NT STALL. A SUM OF ` 1.48 CRORE IS PAID BY THE ASSESSEE TO M/S MINERVA REFRESHMENT STALL. THE SAID CONCERN HAD HANDED OVER THE VACANT POSSESSION TO THE ASSESSEE ON 25 TH APRIL 2006 UPON RECEIPT OF THE SAID SUM AND THE SALE DEED OF THE PROPERTY WAS EXECUTED ON 6 TH JULY 2006. THEREFORE THE ASSESSING OFFICER OBSERVED THAT THERE IS N O INTER CONNECTIVITY INTER DEPENDENCY AND CO-RELATION BETW EEN THE TWO EVENTS I.E. AGREEMENT FOR VACANCY OF TENANCY AND SALE OF T HE PROPERTY. ACCORDING TO THE ASSESSING OFFICER THE VACANCY OF PROP ERTY WAS COMPLETED ON 25 TH APRIL 2006 BY EXECUTION OF THE AGREEMENT BETWEEN THE ASSESSEE AND ITS TENANT. THE CLAIM OF THE ASSESSEE IS TH AT IT IS COST OF IMPROVEMENT. ACCORDING TO THE ASSESSING OFFICER SUC H COST FOR GETTING THE PROPERTY VACATED IS NOT RELATABLE TO SALE . THE PROPERTY WAS GOT VACATED IN THE NORMAL COURSE AND THUS IT CANNOT BE SAID THAT THE SAID AMOUNT REPRESENTED THE COST OF IMPROVEMENT AND H ENCE HE HAS HELD THAT IT IS NOT ALLOWABLE U/S 48 OF THE ACT. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE AGREEMENT DATED 24 TH APRIL 2006 HAS A ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 10 REFERENCE OF AGREEMENT OF TENANCY EXECUTED BETWEEN THE ASSESSEE AND THE TENANT ON 12 TH DECEMBER 1971 VIDE WHICH THE TENANT WAS PERMITTED TO USE COUNTERS ON VARIOUS FLOORS. IN ORDER T O EXAMINE THE VERACITY OF SUCH CLAIM THE ASSESSEE WAS REQUIRED TO FILE COPY OF AGREEMENT DATED 12 TH DECEMBER 1971 AND VIDE LETTER DATED 24 TH DECEMBER 2009 IT WAS SUBMITTED THAT THE SAID AGREEMEN T WAS NOT TRACEABLE. IN SUPPORT THE ASSESSEE HAD FILED A PHOTO C OPY OF P& L ACCOUNT OF M/S MINERVA THEATRE BOMBAY FOR THE YEAR ENDED 31 ST SEPTEMBER 1974 WHEREIN A SUM OF ` 24 000/- WAS SHOWN AS INCOME FROM REFRESHMENT STALLS. ACCORDING TO THE ASSESSEE THE SAI D EVIDENCE WAS SUFFICIENT TO ESTABLISH THE FACT OF TENANCY. THE A SSESSING OFFICER HAS DOUBTED THE SAID DOCUMENT FIRSTLY; ON THE GROUND THAT THE AUTHENTICITY OF PROFIT AND LOSS ACCOUNT WAS IN DOUBT A S THE SAME WAS NEITHER SIGNED NOR AUDITED AND IT WAS ALSO NOT CERTIFI ED AS TRUE COPY BY ANY PERSON. SECONDLY; MERE SHOWING AN INCOME OF ` 24 000/- FROM REFRESHMENT STALLS DOES NOT PROVE THAT IT IS FROM MINERV A REFRESHMENT STALL AND THUS HE HAS HELD THAT THE ASSESSEE HAS FAILED TO PROVE THE TENANCY. IN THE CIRCUMSTANCES THE SAID AMOUNT WAS DISA LLOWED. 8. THE LEARNED CIT (A) HAS DISCUSSED THIS ISSUE IN PARA 6 TO 6.2. THE SUBMISSIONS OF THE ASSESSEE HAVE BEEN RECORDED IN PARA 4.2. IT WAS SUBMITTED THAT AS PER COMMON PRACTICE PREVAILING IN T HE BUSINESS OF CINEMA THE STALLS WERE PROVIDED BY THE ASSESSEE TO M/S MI NERVA REFRESHMENT STALL AS PER AGREEMENT DATED 12 TH DECEMBER 1971. IT WAS SUBMITTED THAT DURING THE COURSE OF NEGOTIATIONS FO R SALE OF THE PROPERTY PRE-CONDITION IMPOSED WAS THAT THE PROPERTY SHOULD BE FREE FROM TENANCY RIGHTS AND FREE FROM ALL ENCUMBRANCES. FOR THAT PURPOSE ONLY THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH TH E SAID MINERVA REFRESHMENT STALL ON 25 TH APRIL 2006 VIDE WHICH THE SAID PARTY HAD RELINQUISHED THEIR TENANCY RIGHTS UPON RECEIPT OF THE PAYMENT OF ` 1.48 CRORES AND IT WAS SUBMITTED THAT IT IS IN THE NATU RE OF COST OF ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 11 IMPROVEMENT OF THE PROPERTY WITHOUT WHICH SALE WOULD NOT HAVE FETCHED THE PROPER CONSIDERATION. REFERENCE WAS MADE TO THE FOLLOWING DECISIONS TO CONTEND THAT THE VALUE OF ENCU MBERED PROPERTY WILL BE CERTAINLY LESSER THAN THE VALUE OF UNENCUMBER ED PROPERTY:- (I) CWT VS. P.N. SIKAND 107 ITR 922 (SC) (II) CWT VS. RAGHABAR NARAIN SINGH 146 ITR 228 9. IT WAS SUBMITTED THAT THE AGREEMENT DATED 25.04.20 06 COULD NOT BE HELD AS FAKE AND BOGUS AS THE ASSESSING OFFICER COULD E ASILY SUMMON THE PARTNERS OF M/S MINERVA REFRESHMENTS STALL TO VERIFY SUCH FACTS. IT WAS SUBMITTED THAT AS PER SETTLED LAW WHEN AN ALLEGATION IS MADE BY A PERSON HE WILL BE UNDER OBLIGATION TO PRO VE THE SAME. SO FAR AS IT RELATES TO ALLOWABILITY OF THE EXPENDITURE IT WAS SUBMITTED THAT IT HAS RIGHTLY BEEN CLAIMED AS COST OF IMPROVEMENT IN ACCORDANCE WITH THE FOLLOWING DECISIONS:- (I) CIT VS. V. RAMASWAMI MUDALIAR 196 ITR 939. (II) ITO VS. G. THANGAVAL GOUNDER 12 TTJ (MAD-TRIP) 273 (III) STUMPP AND SCHUELE GMBH VS. CIT 160 ITR 581 (K AR). 10. CONSIDERING ALL THESE SUBMISSIONS OF THE ASSESSEE LEARNE D CIT (A) HAS OBSERVED THAT IT WAS UNDISPUTED THAT THE SAID M/ S MINERVA REFRESHMENTS STALL WAS HAVING TENANCY RIGHT IN PURSUANC E OF AGREEMENT DATED 12 TH DECEMBER 1971 AND THEY WERE RUNNING THE CANTEENS ON VARIOUS FLOORS OF THE CINEMA HALLS. THE DI SALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON TWO GROUNDS; FIRSTL Y THAT THE AGREEMENT FOR VACANCY OF TENANCY RIGHT WAS SIGNED ON 25 TH APRIL 2006 WHEREAS THE SALE OF CINEMA HALL HAD TAKEN PLACE ONLY ON 6 TH JULY 2006 AND THUS THERE WAS NO LINKAGE BETWEEN THE FACT OF V ACATION OF TENANCY AND CLOSURE OF BUSINESS. SECONDLY THE AGREEME NT DATED 12 TH DECEMBER 1971 WAS NOT PRODUCED. OBSERVING ON THE FI RST OBJECTION OF ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 12 THE ASSESSING OFFICER IT IS MENTIONED BY LEARNED CIT (A ) THAT ANY PRUDENT BUYER WOULD PREFER TO BUY A PROPERTY WHICH IS FREE FROM ENCUMBRANCES. AS THE FACT THAT MINERVA REFRESHMENTS ST ALL WERE HAVING TENANCY RIGHTS SINCE 1971 WAS NOT DISPUTED IT W OULD HAVE BEEN DIFFICULT FOR THE ASSESSEE TO GET VACATED THOSE STALLS ON SHORT NOTICE WITHOUT ANY COMPENSATION HAVING BEEN PAID FOR IT. T HUS LEARNED CIT (A) HELD THAT PAYMENT FOR VACANCY RIGHT CANNOT BE U NDERMINED WHERE THE PROPERTY UNDER SALE WAS TO BE HANDED OVER WITHIN THE AGREED TIME- FRAME. INVARIABLY THE VACANCY OF TENANCY WILL PRE CEDE THE ACTUAL SALE OF THE PROPERTY. A TIME BETWEEN THE TWO EVENTS WAS A S SHORT AS NINE WEEKS AND THIS FACT ITSELF SHOWS THAT THE VACANCY WAS LIN KED WITH THE SALE. NON-AVAILABILITY OF THE AGREEMENT DATED 12 TH DECEMBER 1971 ALSO COULD NOT BE HELD AS FATAL AS THE SAID AGREEMENT H AD WASHED AWAY AND LOST IN FLOOD IN MUMBAI IN RECENT YEARS. HE ALSO FOUND THAT THE COMPENSATION RECEIVED BY M/S MINERVA REFRESHMENT STALL WAS OFFERED FOR LONG-TERM CAPITAL GAIN IN THE RETURN OF INCOME FILED BY THEM FOR ASSESSMENT YEAR 2007-08 AND THEY HAVE ALSO PAID A TAX @ 20% THEREON AND IN THIS MANNER LEARNED CIT (A) HAS DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE DEPARTMENT IS AGGRIEVED HE NCE IN APPEAL. 11. AFTER NARRATING THE FACTS LEARNED DR PLEADED TH AT THE TWO EVENTS NAMELY VACATION OF THE PROPERTY AND SALE OF THE PROPERTY HAPPENED AT DIFFERENT POINTS OF TIME THEREFORE THE Y COULD NOT BE LINKED WITH THE SALE AND THUS THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE ASSESSEE IS NOT ENTITLED TO SET OFF THIS AMOUNT AGAINST THE SALE CONSIDERATION OR TO CONSIDER IT AS COST OF IMPROVEMENT. HE SUBMITTED THAT THE ASSESSEE ALSO COULD NOT PROVE THAT THE TENANCY WAS DATED BACK TO 1971 AS THE ASSESSEE REMAINED UNABLE TO PROVIDE THE COPY OF THE SO-CALLED AGREEMENT DATED 12 TH DECEMBER 1971 BASED UPON WHICH THE SAID M/S MINERVA REFRESHMENTS STALL WAS ENJOYING THE TENANCY ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 13 RIGHTS. THUS RELYING UPON THE ASSESSMENT ORDER IT WAS P LEADED BY HIM THAT LEARNED CIT (A) HAS WRONGLY GRANTED THE REL IEF TO THE ASSESSEE. HE SUBMITTED THAT THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE SHOULD BE RESTORED AND THAT OF CIT (A) SHOULD BE SET ASI DE. 12. ON THE OTHER HAND IT WAS SUBMITTED BY LEARNED AR THAT IT HAS CLEARLY BEEN RECORDED IN THE ORDER OF THE CIT (A) T HAT THE ASSESSING OFFICER HAD MADE DISALLOWANCE ON TWO GROUNDS: (I) THE AGREEMENT FOR VACANCY OF TENANCY RIGHT BEING SIGNED ON 25 TH APRIL 2006 HAD NO LINKAGE WITH THE SALE OF CINEMA HALL WHICH TOOK PLAC E ON 6 TH JULY 2006; AND (II) NON-PRODUCTION OF AGREEMENT DATED 12 TH DECEMBER 1971 AND IN THE ABSENCE THEREOF THE ASSESSEE CANNOT PLACE RELIANC E MERELY ON THE PROFIT & LOSS ACCOUNT OF M/S MINERVA THEATRE PROPE RTY OR THE YEAR ENDING 31 ST DECEMBER 1974. HE SUBMITTED THAT ON BOTH THESE GROUNDS LEARNED CIT (A) HAS RECORDED A FINDING THAT THE PAYMENTS MADE FOR VACANCY OF TENANCY RIGHT HAD LINK WITH THE SALE OF CINEMA HALL AND ALSO THAT IN THE ABSENCE OF AGREEMENT DATED 12 TH DECEMBER 1971 OTHER CONTEMPORARY EVIDENCES COULD BE ACCEPTED AND THUS HE PLEADED THAT THE EXPENSES HAVE RIGHTLY BEEN HELD ALLO WABLE BY LEARNED CIT (A). HE SUBMITTED THAT NOT ONLY THE PROFIT & LO SS ACCOUNT OF M/S MINERVA THEATRE PROPERTY FOR THE PERIOD ENDING 31 ST DECEMBER 1974 WAS SUBMITTED BUT ALSO COPY OF INCOME-TAX RETURN SUBMI TTED BY THE SAID MINERVA REFRESHMENTS STALL FOR THE VERY YEAR WAS A LSO SUBMITTED IN WHICH LONG-TERM CAPITAL GAIN WAS SHOWN AND TAX WAS PAID @ 20%. THUS RELYING UPON THE FINDINGS RECORDED BY THE CIT ( A) IT WAS SUBMITTED BY LD. AR THAT THE ORDER OF THE CIT (A) ON THIS ISSUE SHOULD BE UPHELD. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF THE MATERIAL PLACED BEFORE US. IT IS TRUE THAT WHEN A PERSON PROPOSES TO SELL SOME PROPERTY THEN THE INTENDED BUYER WILL PREFER FOR UNENCUMBERED PROPERTY. THE PROPERTY WHICH IS ALREAD Y OCCUPIED BY ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 14 TENANTS WOULD NOT FETCH MARKET RATE AS THERE WILL ALW AYS BE A FEAR IN THE MIND OF THE INTENDED BUYER THAT THE TENANT MAY OR MAY NOT VACATE THE PROPERTY. BEFORE ARRIVING AT A SETTLED PRICE IT WILL BE ENSURED BY THE INTENDED BUYER THAT HE GOT THE VACANT AND PEACE FUL POSSESSION OF THE PROPERTY. IT CANNOT BE DISPUTED THAT MINERVA RE FRESHMENTS STALL WERE RUNNING STALLS IN THE PREMISES OF THE ASSESSEE. THOUG H THE ASSESSING OFFICER HAS DISPUTED THE DATE OF COMMENCEMENT O F THE TENANCY AS COPY OF AGREEMENT DATED 12 TH DECEMBER 1971 HAS NOT BEEN PRODUCED BUT IT HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE THAT IT HAS BEEN RUNNING STALLS IN THE PREMISES OF THE ASSESSEE SI NCE LONG. IF THE ASSESSING OFFICER HAD ANY DOUBT ABOUT SUCH FACT HE COULD HAVE CONDUCTED INQUIRIES IN THAT REGARD. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE FACTS WERE CONTRARY TO THE CONTENTIONS RAISED BY THE ASSESSEE. MOREOVER THE CAPITAL GAIN TAX AT THE SAME RATE HAS ALSO BEEN PAID BY M/S MINERVA REFRESHMENTS STAL L ON THE AMOUNT RECEIVED BY THEM ON ACCOUNT OF VACANCY OF TH E PROPERTY. THE LEARNED CIT (A) HAS ALSO TAKEN INTO CONSIDERATION THE FLOOD SITUATION IN THE MUMBAI TO SUPPORT THE CONTENTION OF THE ASSESSEE THA T THE AGREEMENT DATED 12 TH DECEMBER 1971 MAY HAVE LOST IN THOSE CIRCUMSTANCES. THUS KEEPING IN VIEW ALL THESE FACTS L EARNED CIT (A) HAS ARRIVED AT A CONCLUSION THAT PAYMENT MADE BY THE ASSESSEE FOR VACANCY OF THE PROPERTY HAD A LINK WITH THE SALE OF PROPERTY AND THEREFORE WAS ENTITLED FOR SET OFF AGAINST SALE CONSIDE RATION. WE FIND NO INFIRMITY IN SUCH FINDINGS RECORDED BY THE CIT (A) . HENCE WE DECLINE TO INTERFERE IN THE DELETION MADE BY HIM AN D THIS GROUND OF THE REVENUE IS DISMISSED. 14. NOW COMING TO ANOTHER ISSUE RAISED BY THE REVENUE IN ITS APPEAL. THIS ISSUE HAS BEEN DISCUSSED BY THE ASSESSING OFFICE R AT PAGE 4 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS OBSERVE D THAT THE ASSESSEE HAD SOLD MINERVA THEATRE MUMBAI TO M/S OSIAN S ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 15 CONNOISSEURS LTD. VIDE SALE DEED DATED 6 TH JULY 2006. THE SAID THEATRE WAS RUN ON CONTRACT BY THE ASSESSEE FOR THE PERIOD FROM 14 TH JULY 2006 TO 31 ST DECEMBER 2006. THE ASSESSEE HAD ALSO FILED COPY OF AGREEMENT DATED 12 TH JULY 2006 (REGISTERED ON 17 TH JULY 2006 EXECUTED WITH THE OWNER OF THE PROPERTY). THE SAID INCOME EARNED BY THE ASSESSEE FROM THE CONTRACT WITH M/S OSIANS CONNOISSEURS L TD. WAS DECLARED BY THE ASSESSEE AS INCOME FROM RUNNING THE CINE MA SOLD BY IT. FROM THE COMPARISON OF THE PROFIT & LOSS ACCOUNT OF THE IMMEDIATE PREVIOUS YEAR I.E. FOR FINANCIAL YEAR 2005-06 WITH THE CURRENT FINANCIAL YEAR I.E. FINANCIAL YEAR 2006-07 THE ASSESSING OFFICE R FOUND THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE EXCESSIVE. THE ASSESSEE WAS REQUIRED TO EXPLAIN THE SAME. IT WAS EXPLAINED THAT THERE WAS A LOSS OF ` 48 96 815/- FROM RUNNING OF MINERVA THEATRE BOMB AY AND THE REASON FOR THAT LOSS WAS ONE TIME PAYMENT MADE ON ACCOUNT OF COMPENSATION GRATUITY AND LEAVE ENCASHMENT AGAINST RETRENCHMENT OF STAFF AFTER SALE OF MINERVA CINEMA MUMBAI. THE DETAILS OF SUCH AMOUN T CLAIMED BY THE ASSESSEE ARE AS UNDER:- (I) ` 36 10 190/- - COMPENSATION EXPENSES. (II) ` 2 80 274/- - STAFF LEAVE SALARY. (III) ` 12 25 796/- - STAFF SERVICE COMPENSATION. (IV) ` 1 58 042/- - STAFF NOTICE PAYMENT (V) ` 14 14 377/- - STAFF GRATUITY. TOTAL ` 66 88 679/- 15. THE ASSESSING OFFICER DISALLOWED THESE EXPENSES ON THE GROUND THAT THESE EXPENSES WERE FIGURING FOR THE FIRST TIME IN THE CLAIM OF EXPENSES AND THE ASSESSEE DID NOT FURNISH DETAILS BASIS OR E VIDENCE FOR CLAIM OF SUCH EXPENDITURE HENCE THE DISALLOWANC E OF ` 66 88 679/- WAS MADE. ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 16 16. THE SUBMISSIONS OF THE ASSESSEE AS MADE BEFORE THE CIT ( A) ARE RECORDED IN PARA 4.3 OF THE ORDER OF THE CIT (A). FOR THE SAKE OF CONVENIENCE THE SAME ARE REPRODUCED BELOW:- 4.3 THE LD. APPELLATE COUNSEL ALSO VEHEMENTLY CHALLE NGED THE ACTION OF THE A.O. IN DISALLOWING THE EXPENSES OF RS.6 6 88 679/- ON THE GROUND THAT SUCH EXPENSES WERE INCURRED TOWARDS THE PAYMENT TO THE ERSTWHILE WHERE EMPLOYEES OF THE MINERVA CINEMA AS ONE TIME COMPENSATION ON ACCOUNT OF REFRESHM ENT DUE TO THE SALE OF MINERVA THEATRE. IT WAS PLEADED THAT SUCH EXPENSES WERE NORMALLY THE BUSINESS EXPENSES ALLOWAB LE U/S 37 OF THE IT ACT. IT WAS ALSO PLEADED THAT THE A.O. DID NOT MAKE ANY EFFORT TO VERIFY WHETHER SUCH PAYMENTS WERE ALLOWABLE U /S 37 OR NOT. IT WAS SUBMITTED THAT THE SECTION 40A (7) GRATUITY PAY MENT IS ALSO ALLOWABLE. FURTHER THE SALARY EXPENSES ARE ALSO ALLOWABLE U/S 37. THE LD. COUNSEL PLACED RELIANCE ON THE FOLLOWING CAS E BY WHICH IT WAS HELD THAT ANY COMPENSATION PAID TO EMPLOYEE BY THE EMPLOYER FOR TERMINATING THE EMPLOYEES SERVICES IS ALLOWABLE EXPENDITURE DINSHAW LTD. (FE) V. CIT (1959) 36 ITR 114 (BOM) CIT VS. MONDAL (D) 1989 175 ITR 440 (CAL). 17. LEARNED CIT (A) HAS DELETED THIS ADDITION AS PER T HE OBSERVATIONS CONTAINED IN PARA 7 TO 7.3 OF THE ORDER WHICH ALSO F OR THE SAKE OF CONVENIENCE ARE REPRODUCED BELOW:- 7. REGARDING THE THIRD GROUND OF ADDITION IN RESPEC T OF DISALLOWANCE OF VARIOUS EXPENSES IN CONNECTION WI TH CONCLUSION OF THE SERVICES OF STAFF MEMBERS AGGREGATI NG IN ALL TO RS.66 88 679/- I FIND THAT THESE EXPENSES WERE INCURR ED BY THE APPELLANT IN RESPECT OF PAYMENT OF GRATUITY PAYMENT OF L EAVE SALARY PAYMENT OF STAFF COMPENSATION PAYMENT OF STAFF NOTICE PAYMENT AND PAYMENT OF STAFF SERVICE COMPENSATION. THI S INCLUDED RETRENCHMENT COMPENSATION FOR 15 DAYS ALSO. THESE PAYMENTS WERE MADE IN PURSUANCE OF AN AGREEMENT DATED 23.6.2006 BETWEEN THE APPELLANT FIRM AND THE UNION OF TH E WORKMAN OF THE MINERVA CINEMA HALL NAMELY M/S AKHI L MUMBAI CHITRAPAT KAMGAR SANGH. IN LIEU OF THE ABOVE PAYMENTS THE UNION AGREED THAT ALL WORKERS SHALL TENDER RESIGNATION IMMEDIATELY AND THEY MUST HAVE NO FURTHER CLAIM OVER THE COMPANY. 7.2 I FIND THAT THE GROUND ON WHICH THE LEARNED A.O. HA S MADE THE DISALLOWANCE AS THESE EXPENSES ARE FIGURING FOR THE FIRST TIME IN THE CLAIM OF EXPENSES. THE ASSESSEE HAS NOT F URNISHED ANY DETAILS NOR BASIS NOR EVIDENCE FOR CLAIM OF THES E EXPENSES. ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 17 IT IS BUT NATURAL THAT THE PAYMENTS WHICH ARE IN THE NATURE OF COMPENSATION FOR CONCLUSION OF SERVICES OF ALL EMPLO YEES WILL NOT BE OCCURRING EVERY YEAR BUT ARE LIKELY TO HAPPEN ONLY IF THE CINEMA HALL COMES TO A CLOSURE OR THE OWNERS STOP COND UCTING THAT BUSINESS. THEREFORE THE OBSERVATION BY THE LEARNE D A.O THAT SUCH EXPENSES WERE CLAIMED FOR THE FIRST TIME IS IN NOCUOUS AND CANNOT BE TREATED AS ADVERSE FOR DISALLOWING THE AF ORESAID EXPENSES. I FIND THAT A DETAILED EXPLANATION REGARDING ABOVE EXPENSES WAS GIVEN BY THE APPELLANT VIDE LETTER DATED 18.12.2009. VIDE THIS LETTER THE APPELLANT HAD EXPLAIN ED THE REASON FOR THE BUSINESS LOSS WHICH WAS DUE TO THE ABO VE REFERRED ONE-TIME COMPENSATION TO THE WORKERS. I OBSER VE THAT THE LEARNED A.O. HAS THEREAFTER DISALLOWED THE ABOVE EX PENSES AS IN HIS VIEW THE APPELLANT DID NOT FURNISH ANY DETAI LS BASIS OR EVIDENCE FOR CLAIM OF SUCH EXPENSES. HOWEVER I FI ND THAT THE LEARNED A.O. PASSED THE ORDER ON 31.12.2009 AND IF H E FOUND THAT THE EVIDENCES FURNISHED BY THE APPELLANT WERE INSUF FICIENT HE COULD HAVE GIVEN ONE OPPORTUNITY TO THE APPELLANT TO P RODUCE WHATEVER EVIDENCES THE A.O. MAY HAVE REQUIRED FOR GETTI NG SATISFIED WITH THE CLAIM OF THE EXPENSES AND COULD HAVE EXPRESSED HIS INTENTION TO THE APPELLANT THAT CERTAIN EVIDE NCES ARE SO CRUCIAL THAT IF THESE ARE NOT FURNISHED THE CLAI M OF THE ABOVE REFERRED EXPENSES COULD BE DISALLOWED. I DO NOT FIND THAT THE LEARNED A.O. HAD TAKEN THIS STEP AND GIVEN OPPORTUNI TY TO THE APPELLANT BEFORE TREATING THE ABOVE EXPENSES AS DISALLOWABLE. 7.3 THE APPELLANT HAD FURNISHED BEFORE ME THE AGREEME NT WITH THE TRADE UNION AND HAS GIVEN THE DETAILS OF VARIOU S EXPENSES INCLUDED IN THE ABOVE ONE TIME COMPENSATION PAYMENTS ALONG WITH COPY OF RECEIPTS FROM VARIOUS EMPL OYEES WHICH ARE AND WERE BOUND TO BE IN THE IDENTICAL MANNER . IN ANY CASE KEEPING IN VIEW TOTALITY OF CIRCUMSTANCES AND TAK ING IN ACCOUNT THE FACTUM OF CLOSURE OF BUSINESS OF CINEMA H ALL BY THE APPELLANT THE ABOVE EVIDENCES WERE NOT STRICTLY REQUIRE D IN ORDER TO MAKE DISALLOWANCE OF THE ENTIRE AMOUNT AND THE LEARNED A.O. COULD HAVE JUDICIOUSLY ACKNOWLEDGED THE RELEVANCE OF AGREEMENT WITH THE TRADE UNION AND ACCORDINGLY EXAMI NED THE BUSINESS PRUDENCE OF SUCH EXPENSES. MOREOVER I FIND THAT THE A.O. HAD NOT GIVEN ANY OPPORTUNITY BEFORE DECIDING TO MAKE ADDITION IN THIS REGARD. IN VIEW OF THIS THIS GROUND IS DECIDED IN FAVOUR OF THE APPELLANT. 18. REFERRING TO THE ASSESSMENT ORDER IT WAS PLEADED BY LEARNED DR THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE DID NOT FURN ISH PROPER DETAILS AND IT WAS ONLY SUBMITTED THAT THESE WERE ONE T IME PAYMENT OF COMPENSATION GRATUITY AND LEAVE ENCASHMENT AGAINST RE TRENCHMENT OF STAFF AFTER SALE OF MINERVA CINEMA MUMBAI. HE CONTE NDED THAT THIS ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 18 ADDITION IS DELETED BY THE LEARNED CIT (A) ON THE GR OUND THAT THE REPLY WAS FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER ON 18 TH DECEMBER 2009 AND THE ASSESSMENT WAS FRAMED BY THE ASSESSIN G OFFICER ON 31 ST DECEMBER 2009 AND THUS THE ASSESSING OFFICER HAD TIME TO ASK THE ASSESSEE TO FURNISH MORE EVIDENCES INSTEAD OF DISALLOWING THE CLAIM OF THE ASSESSEE. THUS THIS WAS A CA SE OF LACK OF OPPORTUNITY PROVIDED BY THE ASSESSING OFFICER. HE SUBMI TTED THAT FOR COMING TO THE CONCLUSION THAT SUCH EXPENSES WERE ALLOWA BLE LEARNED CIT (A) HAS TAKEN INTO ACCOUNT VARIOUS EVIDENCES WHICH WERE NOT FILED BEFORE THE ASSESSING OFFICER AND THE EXPENSES RELATING TO CLOSURE OF BUSINESS COULD BE INCURRED ONLY FOR THE FIRST TIME THE REFORE THE EXPENSES OF THAT NATURE COULD NOT FIND PLACE IN EXPEN SES OF THE EARLIER YEARS. HE SUBMITTED THAT THIS ISSUE MAY BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER FOR RE-ADJUDICATION OR THE DISALLOWANC E MAY BE UPHELD. 19. ON THE OTHER HAND IT WAS SUBMITTED BY LEARNED AR THAT IT WAS CLEARLY MENTIONED BEFORE THE ASSESSING OFFICER THAT THE SE EXPENSES RELATES TO VARIOUS AMOUNTS PAID BY THE ASSESSEE TO ITS EMPL OYEES AGAINST RETRENCHMENT ON SALE OF CINEMA HALL. HE SUBMI TTED THAT THE DETAILS WERE SUBMITTED BEFORE THE ASSESSING OFFICER. AS T HE ASSESSING OFFICER DID NOT GIVE PROPER OPPORTUNITY CERTAIN OT HER EVIDENCES WERE FILED BEFORE THE CIT (A) AND THUS HE PLEADED THAT BASED UPON THOSE EVIDENCES LEARNED CIT (A) HAS RIGHTLY CONCLUDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND HIS ORDER SHOULD BE UPHELD. 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS I N THE LIGHT OF MATERIAL PLACED BEFORE US. IT IS THE CASE OF THE ASSESSEE THAT THESE EXPENDITURES RELATE TO RETRENCHMENT OF THE STAFF AFTE R THE SALE OF MINERVA CINEMA MUMBAI. BEFORE THE ASSESSING OFFICER M UCH DETAILS HAVE NOT BEEN FILED. IN THE PAPER BOOK FROM PAGE 3 8 TO 65 INTER ALIA THE EVIDENCE REGARDING THIS CLAIM IS FILED BY THE ASSESSE E. PAGE 38 ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 19 RELATES TO THE LIST OF EMPLOYEES AND DETAILS OF PAYMENT S MADE TO THEM. FROM PAGE 39 TO 44 THE BANK STATEMENTS ARE FILED THR OUGH WHICH SUCH PAYMENTS HAVE BEEN MADE. PAGE 45 IS SUBMISSIONS MADE BEF ORE THE CIT (A) DATED 2 ND MARCH 2010 VIDE WHICH THE ASSESSEE HAD SUBMITTED COPY OF AGREEMENT OF THE ASSESSEE WITH M/S AKHIL MUMBAI CHITRAPAT KAMGAR SANGH WHICH WAS STATED TO HAVE MADE BASIS FOR WO RKING COMPENSATION PAID TO EMPLOYEES. VIDE THAT LETTER IT WAS ALSO SUBMITTED TO CIT (A) THAT COPY OF CONTRACT OF SERVICE OF EMPLOYEES AND THEIR APPOINTMENT LETTERS WERE NOT AVAILABLE BUT DA TE OF APPOINTMENT CAN BE SEEN FROM CALCULATION SHEET VIDE WHICH THE COM PENSATION WAS WORKED OUT. PAGE 64 AND 65 ARE THE REPLY FILED BEF ORE THE CIT (A) VIDE LETTER DATED 22 ND MARCH 2010 WHEREIN IT WAS SUBMITTED THAT THE ASSESSEE FIRM WAS RUNNING TWO THEATRES MINERVA AT MUMBAI AND PLAZA AT NEW DELHI. IT WAS SUBMITTED THAT BOTH THESE THEATR ES WERE UNDER THE SAME MANAGEMENT. IT WAS SUBMITTED THAT THERE WAS C OMPLETE INTERCONNECTION INTERLACING BETWEEN THE RUNNING OF THESE TWO THEATRES. WHILE MINERVA CINEMA MUMBAI WAS SOLD PLAZA CINEMA A T NEW DELHI WAS KEPT RUNNING. EVEN MINERVA CONTINUED TO BE RUN BY THE FIRM FOR SIX MONTHS AFTER THE SALE WHEREBY THE ASSESSEE FIRM HAS RUN TH E CINEMA AS CONTRACTOR. THE AGREEMENT AND PROFIT & LOSS ACCOUN T SHOWING THE REVENUE FROM THIS WAS ALREADY SUBMITTED. REFERENCE WA S MADE TO VARIOUS DECISIONS WHERE IT WAS HELD THAT IF THERE IS INT ERCONNECTION INTERLACING AND INTER-DEPENDENCE THE ACTIVITY OF T HE BUSINESS SHALL BE CONSIDERED TO BE SINGLE ACTIVITY AND THUS IT WAS CLAI MED THAT THE EXPENDITURE INCURRED FOR RETRENCHMENT OF STAFF SHOUL D BE ALLOWED. AT PAGE 66 AND 67 THE ASSESSEE HAS SUBMITTED THE AGREEMENT O F THE ASSESSEE WITH M/S AKHIL MUMBAI CHITRAPAT KAMGAR SANGH ON THE BASIS OF WHICH SEVERAL EMPLOYEES OF THE ASSESSEE WERE PAID RETR ENCHMENT AMOUNT AND LIST OF THESE EMPLOYEES AND CALCULATION OF COMPENSATION IS PLACED AT PAGES FROM 68 TO 71 OF THE PAPER BOOK. ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 20 21. THUS IT HAS BEEN THE CASE OF THE ASSESSEE THAT IT WAS RUNNING TWO CINEMA THEATRES FROM WHICH IT WAS EARNING BUSINESS I NCOME AND THERE WAS INTERCONNECTION INTERLACING AND INTERDEPE NDENCE BETWEEN THESE TWO BUSINESSES. ONE BUSINESS HAVING NOT BEEN CONTINU ED THE PAYMENT ON ACCOUNT OF RETRENCHMENT OF STAFF IS ALLOWA BLE. THOUGH LEARNED CIT (A) HAS NOT DISCUSSED SUCH SUBMISSIONS OF THE ASSE SSEE BUT HE HAS ADMITTED THE CLAIM OF THE ASSESSEE WITHOUT GO ING INTO THESE SUBMISSIONS. THERE IS A CONTRADICTION IN THE CLAIM OF T HE ASSESSEE. THE ASSESSING OFFICER AT PAGE 2 OF THE ASSESSMENT ORDER HAS CLEARLY RECORDED THAT THE ASSESSEE IS DERIVING INCOME FROM PROPE RTY IN RESPECT OF PLAZA CINEMA NEW DELHI AND SUCH OBSERVATIONS OF TH E ASSESSING OFFICER ARE CONTAINED AT PAGE 2 OF THE ASSESSMENT ORDER IN THE FOLLOWING MANNER:- THE ASSESSEE FIRM OWNS TWO PROPERTIES NAMELY PLAZA CINEMA NEW DELHI AND MINERVA CINEMA MUMBAI. IT DERIVES IN COME FROM EXHIBITION OF FILMS IN MUMBAI AND INCOME FROM PROPER TY IN NEW DELHI. SEPARATE BOOKS ARE BEING MAINTAINED BY THE ASSESSEE FIRM IN RESPECT OF DELHI AND MUMBAI. HOWEVER DURIN G THE YEAR MINERVA CINEMA PROPERTY HAVE BEEN SOLD. APART FROM B USINESS INCOME THE ASSESSEE HAS ALSO DECLARED INCOME FROM C APITAL GAIN HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. (EMPHASIS OURS) 22. THUS THERE IS A CONTRADICTION IN THE CLAIM OF TH E ASSESSEE VIS-A- VIS THE FINDING RECORDED BY LEARNED ASSESSING OFFICER. ACCORDING TO THE ASSESSEE IT HAS EARNED INCOME IN THE SHAPE OF INCOME FROM BUSINESS OR PROFESSION FROM RUNNING PLAZA CINEMA AT DEL HI WHEREAS THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS CLEARLY RE CORDED A FINDING THAT THE ASSESSEE IS EARNING INCOME FROM PROPERT Y IN NEW DELHI. IN THE COMPUTATION OF INCOME THE ASSESSEE HAS SH OWN NET PROPERTY INCOME AT ` 51 81 578/- AGAINST GROSS RENTAL RECEIPTS OF ` 1 71 08 264/-. HOWEVER IT IS NOT CLEAR THAT WHETHE R SUCH RENT IS EARNED FROM PLAZA CINEMA NEW DELHI. THE LAW RELAT ING TO ALLOWABILITY OR OTHERWISE OF RETRENCHMENT COMPENSATION IN RESPECT O F A CLOSED BUSINESS WAS EXPLAINED BY THE HONBLE SUPREME COURT IN THE CASE OF ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 21 CIT VS. GEMINI CASHEW SALES CORPORATION 65 ITR 643 (SC ). IT WAS HELD THAT RETRENCHMENT COMPENSATION IN RESPECT OF A CLOSED BUSINESS CANNOT BE ALLOWED U/S 37 OF THE INCOME-TAX ACT AND T HE DECISION OF HONBLE SUPREME COURT HAS BEEN FOLLOWED BY VARIOUS HI GH COURTS IN THE FOLLOWING DECISIONS:- (I) BINANI PRINTERS PVT. LTD. VS. CIT 143 ITR 338 (CA L) : IN THAT THE ASSESSEE HAD CLAIMED RETRENCHMENT COMPENSATION AND NOTICE PAY IN RESPECT OF ITS CLOSED DOWN PRINTING BUSIN ESS WHILE IT CONTINUED WITH PUBLISHING BUSINESS AND SUCH PAYMENT OF RETRENCHMENT COMPENSATION ON CLOSURE OF PRINTING BUSINESS WAS HELD AS NOT ALLOWABLE EXPENDITURE ON THE BASIS OF AFOREMENTIONED DECISION OF HONBLE SUPREM E COURT IN THE CASE OF CIT VS. GEMINI CASHEW SALES CORPORATION. (II) NATHA LAL ASHRAM VS. CIT 194 ITR 110 (GUJ) WHERE IN THE ASSESSEE BEING A FIRM HAD CLOSED DOWN ITS BUSINESS FROM 13 TH NOVEMBER 1974 AND DUE TO SUCH CLOSURE SERVICES OF ALL THE SIX EMPLOYEES WERE TERMINATED. THE ASSESSEE HAD MADE PROVISION OF ` 74 500/- ON ACCOUNT OF GRATUITY PAYMENT WHICH WAS IN THE SHAPE OF COMPENSATION FOR THE IR RETRENCHMENT AND IT WAS HELD BY HONBLE GUJARAT HIGH COURT THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT SUC H EXPENDITURE COULD NOT BE ALLOWED SINCE THE LIABILITY TO MAKE SUCH PAYMENT HAD ARISEN ON ACCOUNT OF RETRENCHMENT AND WHEN THE BUSINESS IS CLOSED DOWN RESULTING INTO RETRENCHMENT. IT COULD NEVER BE SAID THAT THE RETRENCHMENT COMPENSATION IS PAID FOR THE PURPOSE OF T HE BUSINESS. (III) CIT VS. CENTRAL ART PRESS 189 ITR618 (MAD). THE ASSESSEE IN THAT CASE HAD CLOSED DOWN ITS BUSINESS W.E.F. 3 RD MARCH ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 22 1969. THE SERVICES OF WORKMEN WERE TERMINATED WITH IMMEDIATE EFFECT AND THEY WERE PAID RETRENCHMENT COMPENSATION AND GRATUITY ON THAT DATE AND SUCH PAYMENTS WERE HELD NOT ALLOWABLE. EVEN THE GROUND T AKEN BY THE ASSESSEE WAS THAT ACCOUNTS WERE CLOSED ON 15 TH MARCH 1969 AND SOME EXPENDITURES WERE INCURRED IN TH E FULFILLMENT OF PRIOR COMMITMENTS AND THEREFORE BUSI NESS SHOULD BE CONSIDERED TO HAVE BEEN CONTINUED TILL 15 TH MARCH 1969 AND THESE PAYMENTS SHOULD BE ALLOWED. THI S GROUND WAS ALSO REJECTED BY THE HONBLE HIGH COURT. (IV) P.N. GANESHAN PVT. LTD. IN LIQUIDATION VS. CIT 1 96 ITR 455 (MAD). THE EXPENDITURE PAID AS RETRENCHMENT COMPENSATION WERE NOT HELD ALLOWABLE EVEN AT THE TIM E OF WINDING UP OF THE COMPANY AS THE SAME WERE INCURRED F OR CLOSING THE BUSINESS AND NOT FOR RUNNING IT. 23. THUS IT IS A SETTLED LAW THAT IF RETRENCHMENT COM PENSATION IS PAID IN RESPECT OF A BUSINESS WHICH HAS BEEN CLOSED SUCH RETRENCHMENT COMPENSATION IS NOT ALLOWABLE TO BE DEDU CTED U/S 37 OF THE ACT. HOWEVER IN A CASE WHERE AN ASSESSEE IS RUNNING SEVERAL UNITS AND THERE IS INTER CONNECTION INTERLACING AND INTER -DEPENDENCE OF THESE UNITS AND OUT OF THOSE UNITS ANY ONE UNIT IS CLOSED IN RESPECT OF WHICH SUCH COMPENSATION IS PAID THEN THE SAME IS ALLOW ABLE AS PER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRA NATHAN NAIR VS. CIT 247 ITR 178 (SC). 24. FROM ALL THE ABOVE CASES IT CAN BE SEEN THAT IF RE TRENCHMENT COMPENSATION IS PAID FOR THE CLOSURE OF BUSINESS THEN I T CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. IT MAY BE ALLOWED IN A CASE WHERE THE ASSESSEE HAS SEVERAL ACTIVITIES/UNIT RESULTING INTO BUSI NESS INCOME AND ONE OF THESE ACTIVITIES/UNITS IS CLOSED DOWN IN RESPE CT OF WHICH RETRENCHMENT COMPENSATION IS PAID AND OTHER BUSINESS OF THE ASSESSEE ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 23 IS CONTINUED AND IT IS A CASE WHERE THERE IS INTERCONNE CTION INTERLACING AND INTERDEPENDENCE OF THE BUSINESS CLOSED AND BUSINESS CO NTINUED. IT HAS ALREADY BEEN OBSERVED THAT THOUGH IT IS THE CASE OF THE ASSESSEE THAT IT HAS CONTINUED ITS BUSINESS ACTIVITY AS IT HAS BEEN RUNNING A CINEMA HOUSE AT DELHI BUT THIS CLAIM OF THE ASSESSEE IS C ONTRADICTORY TO THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMEN T ORDER THE RELEVANT PORTION OF WHICH HAS ALREADY BEEN REPRO DUCED IN THE ABOVE PART OF THIS ORDER. ACCORDING TO THE ASSESSING O FFICER THE ASSESSEE IS DERIVING INCOME FROM PLAZA CINEMA ONLY IN TH E SHAPE OF HOUSE PROPERTY INCOME. THEREFORE RETRENCHMENT COMP ENSATION IN RESPECT OF CLOSED BUSINESS OF THE ASSESSEE (MINERVA CINEMA BOMBAY) CANNOT BE HELD TO BE ALLOWABLE IN THE ABSENCE OF CON TINUATION OF OTHER BUSINESS ACTIVITIES HAVING INTERCONNECTION INTERLACING AND INTERDEPENDENCE OF THE CLOSED BUSINESS WITH THE CONTINU ED BUSINESS OF CINEMA AT DELHI. HOWEVER AS THE FACT IS NOT VERY CL EAR THEREFORE IN OUR OPINION THIS ISSUE SHOULD BE RESTORED BACK TO THE F ILE OF ASSESSING OFFICER TO FIRST DETERMINE THIS FACT AND THEN RE-ADJU DICATE THE DISALLOWANCE AFRESH. THERE IS ANOTHER REASON TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER AS THE ASSESSEE DID NOT FURNISH COMPLETE EVIDENCE BEFORE THE ASSESSING OFFICER IN THIS REGARD AND THEREFORE THE MATTER COULD NOT BE EXAMINED BY THE ASSESSING OFFICER I N A PROPER MANNER. LEARNED CIT (A) HAS NOT GONE INTO THIS ASPECT OF THE MATTER WHICH IS ESSENTIAL TO DETERMINE THE ALLOWABILITY OR OT HERWISE OF THIS EXPENDITURE. 25. HERE IT MAY ALSO BE THE CASE OF THE ASSESSEE THAT IT HAS EARNED INCOME IN THE SHAPE OF INCOME FROM BUSINESS AS EVEN AF TER SALE OF THE MINERVA CINEMA IT HAD RUN THE CINEMA ON CONTRA CT BASIS BY WAY OF AN AGREEMENT WITH THE BUYER OF THE PROPERTY. THAT ARGUMENT OF THE ASSESSEE IS NOT SUPPORTING THE CLAIM OF THE ASSESSEE FOR ALLO WABILITY OF THIS EXPENDITURE AS WHAT IS NECESSARY FOR ALLOWABILITY O F RETRENCHMENT ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 24 COMPENSATION IN RESPECT OF A CLOSED BUSINESS IS THAT THE D AY ON WHICH THE SAID BUSINESS IS CLOSED THE ASSESSEE MUST HAVE OTHER BUSIN ESS BEING CONTINUED AND THAT BUSINESS SHOULD HAVE INTERCONN ECTION INTERLACING AND INTERDEPENDENCE WITH THE CLOSED BUSIN ESS. THE BUSINESS CARRIED ON BY THE ASSESSEE LATER ON FROM THE SOLD PROPERTY CANNOT BE SAID TO HAVE ANY INTERCONNECTION INTERLAC ING OR INTERDEPENDENCE WITH THE CLOSED BUSINESS. THE CONTINUI TY OF BUSINESS IS ALSO BROKEN. THEREFORE SUCH ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE. 26. IN VIEW OF THE ABOVE DISCUSSIONS THIS ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION T HEREOF AS PER THE DIRECTIONS GIVEN ABOVE. FOR STATISTICAL PURPOSES THIS GR OUND OF THE REVENUE IS TREATED TO BE ALLOWED. 27. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL FILED BY THE DEPARTMENT IS PARTLY ALL OWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. THE ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.2 011. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED 31.01.2011. DK ITA NOS.3008/DEL/2010 ITA NO.3370/DEL/2010 25 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES DATE OF DICTATION 25.01.2011 DATE OF PRESENTATION OF THE DRAFT ORDER TO THE MEMBER 27.01.2011 DATE OF RETURN FROM THE BENCH AFTER PRONOUNCEMENT &SIGNING DATE OF DISPATCH OF THE ORDER TO THE BENCH