Kailash B Wani, Pune vs Department Of Income Tax

ITO, Ward-3(1), Pune .. Appellant

Vs.

Kailash B. Wani, 925/A, Trikaya House, Dindayal Hospital Lane, F.C. Road, Pune - 411 005 .. Respondent PAN No.ACPW9291M

Appellant by : Shri Nikhil Pathak & Shri Suhas P. Bora Department by : Shri Aseem Sharma Date of Hearing : 26-05-2015 Date of Pronouncement : 30-06-2015

ORDER

PER R.K. PANDA, AM :

This appeal filed by the Revenue is directed against the

order dated 27-11-2012 of the CIT(A)-II, Pune relating to

Assessment Year 2008-09.

2. Grounds of appeal No. 1 to 3 by the Revenue read as

under :

"(1) The learned Commissioner of Income-tax (Appeals) erred in deleting the receipt of Rs.3 crores through Shri.Sanjay Nemichand Lohade without appreciating the fact that out of land of 41 ares, 9 ares land belonged to the assessee and for the balance 32 ares the assessee had entered into Memorandum of Understanding (MOU) with Shri.Pradeep Dorje in the year 2000 and the MOU for the entire 41 ares has been signed by the assessee as consenting party, the sellers being the Kadam family members and the purchaser being M/s.Fullmoon Housing Pvt. Ltd.

(2) The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate the fact that the payment of Rs.3 crores has been made to Shri.Sanjay Nemichand Lohade on behalf or at the instance of the assessee as it is the assessee who has entered into MOU dated 16.05.2007 with Fullmoon Housing Pvt. Ltd. and 2

Shri.Sanjay Nemichand Lohade was only the constituted attorney on behalf of Shri.Dorje for withdrawing the civil suit.

(3) The learned Commissioner of Income-tax (Appeals) erred in failing to appreciate that except the payment made to the members of Kadam family as land owners, the remaining payment ought to have come in the hands of the assessee and not any other person and as such, out of total consideration of MOU of Rs.9,26,46,600/-

after deducting Rs.3,40,00,000/- paid to the land owners, the remaining amount has been received by assessee either on behalf of or at the instance of the assessee."

3. Facts of the case, in brief, are that the assessee is an

individual and engaged in the business of trading in land and

property development. He filed his return of income on 25-09-

2008 declaring total income of Rs.3,14,36,020/-. During the

course of assessment proceedings the Assessing Officer noted

that a survey action u/s.133A of the I.T. Act was conducted on

12-03-2008 on the assessee and his statement on oath was also

recorded. During the course of survey an MOU was impounded

along with a loose paper u/s.133A(3) (ia) of the I.T. Act. As per

the MOU and based on the statement recorded the assessee had

offered an additional income of Rs.2,11,46,600/- and as per one

paper impounded as per Bundle No.6, additional amount of

Rs.39 lakhs was also disclosed. Further, for omission or error

an amount of Rs.42,214/- was also offered for tax in the

statement recorded of the assessee on 12-03-2008. Thus, the

total disclosure of Rs.2,58,88,814/- was made by the assessee in

the statement recorded. The assessee while honouring the

disclosure of such amount of Rs.2,11,46,600/- and

Rs.39,00,000/-, however, did not offer the amount of

Rs.42,214/- which was on account of any omission or error.

The AO made addition of this amount which was accepted by the

assessee before CIT(A) and therefore we are not concerned with

the above addition.

3

4. During the course of assessment proceedings the

Assessing Officer observed from the MOU, which was impounded

during the course of survey on 12-03-2008, that the same is

dated 16-05-2007 and it is between M/s. Full Moon Housing

Pvt. Ltd. through their directors Shri Arvind Premchand Jain

and Shri Shrawan Devakinandan Agarwal on one side as

purchaser and the assessee as the party of 2nd part as the seller.

As per the MOU land admeasuring 41 ares is to be purchased by

M/s. Full Moon Housing Pvt. Ltd. for a total consideration of

Rs.9,26,46,600/-. As per the MOU, the amount of Rs.

9,26,46,600/- is to be given to the assessee which is inclusive of

the following :

1. Rs.3,40,00,000/- To Kadam sisters (Original owners)

2. Rs.25,00,000/- For expenses such as stamp duty etc.

3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla)

4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (For surrendering rights)

5. Rs.2,11,46,600/- To be paid to the assessee in cash

-------------------------

TOTAL Rs.9,26,46,600/-

-------------------------

The AO therefore asked the assessee to explain with supporting

evidences about the payments made to others by assessee or

else to explain why the entire amount should not be added to the

income of the assessee.

4.1 The assessee submitted that Smt. Sulabha Satam had

assigned her rights in the property admeasuring 09 Ares to

assessee for a consideration of Rs.31,50,000/-. The money has

been paid to the various parties as per the MOU and he has

correctly offered to tax the cash received by him of an amount of

Rs.2,11,46,600/- which was declared by him during the course

of survey.

4

5. However, the AO was not satisfied with the above

explanation of the assessee. He observed that the MOU dated

16-05-2007 executed between M/s. Full Moon Housing Pvt. Ltd,

the purchaser and the assessee as the seller whereby the

purchaser agreed to purchase 41 Ares of land at S.No 5/1-A for

a total consideration of Rs. 9,26,46,600/- in the following

manner:

Sl.No. Amount Particulars 1 Rs. 3,40,00,000/- To Kadam sisters (Original owners of the land) 2 Rs. 25,00,000/- For expenses as stamp duty etc. 3 Rs. 50,00,000/- To Shri. Kailash B Wani, the appellant/ as compensation) 4 Rs. 3,00,00,000/- To Shri. Sanjay N Lohade (For surrendering rights) 5 Rs. 2,11,46.600/- To be paid to the assessee in cash Rs. 9,26,46,600/- Total

5.1 The Assessing Officer further noted that during the

assessment proceedings in order to examine the veracity of the

MOU dated 16-05-2007 the statement of the persons mentioned

in the said MOU including Shri Sanjay N. Lohade, who was

shown to have been paid Rs. 3 crores by the purchaser were

recorded. While the genuineness and propriety of the payments

to various persons were acceptable, the AO noted that the

payment made to Mr. Sanjay N Lohade of Rs. 3 crores was

doubtful. The Assessing Officer held that the money of Rs. 3

crores paid to Mr. Lohade belong to the assessee and the

purchaser M/s. Full Moon Housing Pvt. Ltd paid the amount on

behalf of the assessee. The Assessing Officer also noted that the

assessee held all the rights in respect of the land sold as per

MOU dated 16-05-2007 to M/s Full Moon Housing Pvt. Ltd and 5

that Shri. Lohade had not contributed in any way in the

negotiation of the deal except for withdrawing the court suit No.

1006/1996. The Assessing Officer while disallowing the payment

of Rs.3,00,00,000/- to Mr. Lohade assigned the following

reasons as per para 7.6 to 7.8 of the assessment order which

has been summarized by CIT(A) at page 17 of the appeal order as

under :

"1) The assessee by MOU dated 16/05/2007 agreed to transfer S. No. 5/1A admeasuring 41 Ares to M/s. Full Moon Housing Pvt. Ltd for aggregate consideration of Rs. 9,26,43,600/-.

2) There was special power of attorney executed by Pradeep Dhorje on 16/07/2001 in favour of Shri. Sanjay Lohade constituting him as his attorney for Civil Suit No. 1006/1996.

As per Assessing Officer his appointment was made at the behest of the assessee.

3) The MOU signed by the assessee, Shri. Pradeep Dhorje, Shri Sanjay N Lohade on 16/07/2001 did not mention any amount to be paid to Shri. Sanjay Lohade either by Pradeep Dhorje or the assessee.

4) As per the statement recorded u/s. 131 on 18/11/2010 Shri. Sanjay N Lohade has stated that he was to receive Rs. 5 Lacs from the assessee for some kind of services done by him, relating to requirement of PMC. Albeit, mention of this is not found anywhere in any document

5) The assessee brought Shri. Sanjay Lohade into the picture to deal with the Civil Suit bearing 1006/96 filed by Shri. Pradeep Dhorje against the land owners.

6) The said Sanjay Lohade only filed documents, applications for withdrawing the said Civil Suits from the court.

7) Shri. Sanjay Lohade stated that in the entire deal of transfer of land to M/s. Full Moon Housing Pvt. Ltd. he has not signed any of the documents.

8) In the year 2001 when Shri Pradeep Dhorje signed the power of attorney in favour of Sanjay Lohade there was no right created in favour of Shri. Sanjay Lohade. Neither there is any mention about the consideration to be paid to him.

9) Even in the transfer of land, his role is only limited to withdrawing the Civil Suit from the court in terms of special powers of attorney and except that said Lohade has done nothing."

6. Before the CIT(A) the assessee submitted that Mr. Pradeep

Kumar Dhorje had initially i.e. vide agreement on 1-10-1995

agreed to purchase the entire land of 81 Ares at S.No 5/1A as 6

well as land measuring 80 Area at S.No.5/1B totalling to 161

Ares from the original land owners namely Kadam

sisters/family. However, despite the existing agreement, the

Kadam sisters/family sold 80 Ares of land of both the aforesaid

Survey nos. to 8 different buyers each one buying 10 Ares. It

was submitted that Mr. Pradeep Dhorje held the deal to be illegal

because of the existing MOU dated 01-10-1995, being in his

favour and since Kadam family could not have executed the sale

deed on 08-12-1995, therefore, Mr. Dhorje filed the suit No

1006/1996 against the Kadam family and the eight buyers. It

was further submitted that on 18-08-1999 a settlement was

arrived at between Mr. Dhorje and the eight buyers who together

purchased land at S.No 5/1-B totaling to 80 Ares by which

Dhorje gave his right of specific performance with respect to the

80 Ares of land. However, the civil suit with respect to the

remaining land at S.No 5/1A-81 Ares continued. During the

pendency of the special suit, Mr. Dhorje agreed to sell 32 Ares of

land at S.No 5/1A to the assessee on 11-10-2000 for Rs.

6,00,000/- and in the same MOU also transferred the right in

respect of the Special Suit. Thereafter, on 16-07-2001, Mr.

Dhorje executed MOU with the assessee and Mr.Sanjay Lohade

and the power of attorney in favour of Mr.Sanjay Lohade by

which mention to the effect that Mr.Sanjay Lohade agreed to

obtain development rights and to purchase the said land at Sr.

No 5/1A from the Kadam family either in his own name or in the

names of the nominees and the assessee also agreed for the

transaction to be entered into by the said Kadam family with

Mr.Sanjay N. Lohade for the said land and Mr. Lohade was also

given specific power of attorney on 16-07-2001 itself. Thus, the

assessee after purchasing 32 Ares from Mr. Dhorje on 11-10- 7

2000 purchased 9 Ares out of the 81 Ares of S.No.51/1A from

Smt.Satam Sulbha on 11-08-2005 for total consideration of

Rs.31,50,000/- and also executed development agreement.

Thus, the entire land of 41 Ares was the subject matter of civil

suit No 1006/1996 and without its settlement the assessee

could not have sold the land and the Kadam family were

seriously contesting the civil suit. The assessee as well as Mr.

Dhorje found themselves incapable to continue with the legal

battle which was consuming both time and money and thus out

of business prudence Mr. Sanjay Lohade was brought into the

matter who assured to do everything necessary including

attending the complicated litigation and also obtained the

development rights in respect of the land under suit. It was in

such a situation that the assessee and Mr. Pradeep Dhorje

executed the power of attorney as well as MOU dated 16-07-

2001 by which Mr. Lohade acquired control over the civil suit as

well as the land involved in the suit. The assessee submitted

that in due course after a period of 6 years due to Mr. Lohade's

persistent efforts he could bring the Kadam family to amicable

settlement in the year 2007 and the assessee agreed to enter

into the MOU dated 16-05-2007 and accordingly Mr. Lohade

agreed to give up his right of obtaining the development

agreement. It was submitted that in view of the aforesaid fact

and circumstances that the purchaser M/s. Full Moon Housing

Pvt. Ltd agreed to pay the necessary compensation of Rs. 3

crores to Mr. Sanjay Lohade and, therefore, the Assessing

Officer's observation that the payment being made to Mr. Lohade

at the behest of the assessee is factually not correct. It was

further contended that the Assessing Officer's noting that Mr.

Sanjay Lohade did not enjoy or had any right in the property 8

transacted and eventually sold the same to M/s. Full Moon

Housing Pvt. Ltd. is not correct. It was explained that Assessing

Officer's observation that Mr. Lohade had no locus stand! is

equally incorrect and wrong as Mr. Lohade was given not only

the power of attorney but also the right to obtain the

development agreement and purchase the land in his name. It

was submitted that Mr. Lohade besides having the right in the

property though not in presentee but on attaining and getting

the civil suit concluded which took six years to settle the issue

and it was this contribution of Mr. Lohade which was evaluated

by the purchaser who independently on its own agreed to pay

Rs. 3 crores at its own behest apart from the amount of

Rs.3,40,00,000/- to the Kadam family and the balance to the

assessee. It was submitted that in the statement recorded u/s

131 by the Assessing Officer, Mr. Lohade had spontaneously

admitted to have received Rs. 3 crores from the purchaser and

that the same had been shown as advance in his books of

account. It was emphasized that the Assessing Officer had

erroneously interpreted the answer given by the Director of Full

Moon Housing Pvt. Ltd, Mr. Arvind Jain to suggest that whatever

the payments made by him was at the instance of the assessee.

In fact the correct interpretation should have been that the

assessee being the vendor had to sell the land which was in fact

not registered in his name as title holder and the assessee was

also fully aware of the interest of the Kadam family as well as

Mr.Lohade and, therefore, the assessee had to agree for payment

of such purchase consideration to the original land owners i.e.

the Kadam family and to Mr. Lohade who had vested interest in

the property because of the circumstances of the case. It was

contended that the Assessing Officer has accepted the payment 9

of Rs. 3,40,00,000/- made to the Kadam family who was also

stated to have been given at the behest of the assessee and the

same answer given in the case of payment to Mr. Lohade has

been erroneously interpreted by the Assessing Officer. The

assessee drew the attention of CIT(A) to the MOU between the

assessee and Full Moon Housing Pvt. Ltd which was found

during the course of survey which also included payment of

Rs.2,11,46,600/- which was not reflected in the final sale

agreement, which the Assessing Officer has taxed in the hands

of the assessee on the basis of the aforesaid MOU and

considered the same as true and genuine. The assessee drew

attention of Ld.CIT(A) to para 2 of the MOU which indicated that

the assessee and Mr. Dhorje had assigned all their rights, title

and interest to Mr.Sanjay Lohade vide the MOU dated 16-07-

2001 along with the rights and powers of civil suit no.

1066/1996. It was accordingly contended that Mr. Lohade has

thus some right in the property which got ultimately transferred

to the purchaser Full Moon Housing Pvt. Ltd and as per Clause

3 of the MOU, it is clearly mentioned that the assessee would be

responsible to pay the amount to Mr. Lohade for withdrawing

the civil suit along with his rights, title in the property and

accordingly out of the total consideration of Rs. 9,26,46,600/- it

was agreed that Rs. 3 crores would be paid to Mr. Lohade.

Accordingly the purchaser paid the aforesaid amount directly to

Mr. Lohade. The assessee accordingly requested the CIT(A) to

delete the addition.

7. Based on the arguments advanced by the assessee the

Ld.CIT(A) deleted the addition made by the AO by observing as

under :

10

"5.2 The facts brought on record indicate that a survey action u/s 133A was carried out on the appellant on 12-3-2008 wherein the Memorandum of Understanding or the MOU dated 16-05-2007 was found and impounded. The said MOU was executed between Full Moon Housing Pvt Ltd (FMHPL) and the appellant, and the purchaser and the appellant as the seller of 41 Ares of land at S.No 5/1A for a total consideration of Rs. 9,26,46,600/-, the details of which are as under:

1. Rs. 3,40,00,000/- To Kadam sisters (Original owners)

2. Rs. 25,00,000/- For expenses as stamp duty

3. Rs. 50,00,000/- To Shri. Kailash B Wani ( as mobadla)

4. Rs. 3,00,00,000/- To Shri. Sanjay N Lohade (For surrendering rights)

5. Rs. 2,11,46,600/- To be paid to the assessee in cash

Rs. 9,26,46,600/-

The appellant on the basis of the notings made in the MOU which included payment in cash offered an additional income of Rs. 2,11,46,600/- during the survey action along with Rs. 39 lacs based on a loose paper No. 6. The Assessing Officer has examined Shri. Sanjay Lohade to whom payment of Rs. 3 crores were made and Shri. Arvind Jain, Director of FMHPL under oath u/s 131 recorded their statements. The Assessing Officer also examined the Kadam sisters who were also paid an amount of Rs.3,40,00,000/-. The Assessing Officer has not questioned the genuineness of the payments made to the persons against whom the aforesaid amount had been mentioned except that of Shri. Sanjay N. Lohade who was paid Rs. 3 crores by the purchasers. The Assessing Officer held the aforesaid payment lawfully belonged to the appellant and that the purchasers had made the payment on behalf of the appellant. The Assessing Officer after examining the MOU's for the said property and other related documents inferred that in the transfer of land, the role of Shri Lohade was limited to the withdrawal of the civil suit from the court in terms of the power of attorney.

The fact brought on record do indicate the existence of litigation for the said property and which has continued for a pretty long time of nearly 12 years during which several negotiations and MOU's were executed by Shri. Pradeep Dhorje and the appellant, through which Sanjay N Lohade was given the power of attorney and also the development right by Shri. Dhorje and the appellant. The appellant, it appears had agreed to the inclusion of Shri. Lohade so as to solve the complicated litigation ongoing since a few years with Kadam family, the owners of land. The MOU dated 16-07- 2001 clearly indicates the importance of the role of Shri. Lohade so as to bring the matter to an amicable settlement which finally took place in 2007 wherein the MOU dated 16-5-2007 was drawn and which was subsequently impounded during the course of the survey action on 12-03-2008. The Assessing Officer in arriving at the conclusion of the role of Shri. Lohade has relied heavily on the statements recorded u/s 131 during the assessment proceedings on 19.11.2010 & 29.11.2010 of Shri. Lohade and Shri. Arvind Jain, the Director of the Company Full Moon Housing Pvt. Ltd the purchaser.

The responsibilities fixed upon Shri. Lohade could not be totally disregarded in the given facts of the case. The MOU dated 16-7-2001 has not been considered by the Assessing Officer and has not examined the same during the assessment proceedings as Shri. Lohade had been given the right to obtain the development agreement and purchase of the said land in his name apart from attending the litigation involved in civil suit No. 1006/1996 at his own cost and responsibility, thus the observation of the Assessing Officer that Shri. Lohade had no 11

locus standi is factually not correct. The purchaser i.e. Full Moon Housing Pvt. Ltd was also fully aware of the facts of the case before the MOU dated 16-05-2007 was executed. In the statement recorded u/s 131 of Shri. Arvind Jain, the Director of the purchaser company before the Assessing Officer, it has never denied regarding the payment to Shri. Sanjay N Lohade rather reference to the negotiation for the settlement of the amount to be paid to Shri.Lohade has been mentioned as Shri. Lohade was expecting an amount of Rs.4 crores and the same was settled at Rs. 3 crores. The reference of Q. No. 26 of the statement of Arvind Jain, the Director of FMHPL, the purchasers suggests that the payment made by them were at the instance of the appellant which has erroneously been interpreted by the Assessing Officer to be made on behalf or the appellant. The other answers given by Shri. Jain clearly indicates the involvement of the appellant in the said transaction and also the role of the other persons have been highlighted by the purchaser. This is not a case where the purchaser was not aware of the role of different persons connected with the land such as the interest of the Kadam family and also that of Sanjay Lohade.

Thus the inference drawn by the Assessing Officer that the payment to Shri. Lohade was made at the behest of the appellant is apparently not correct. The aforesaid land which is the subject matter of the issue involved had a history which has not been looked into and considered by the Assessing Officer while drawing the inference regarding Shri Lohade. The fact on record do indicate that Shri. Lohade had interest in the property and in clause 3 of the MOU dated 16-7-2001 it is clearly mentioned that the appellant could be responsible to pay to Shri. Lohade for withdrawal of the civil suit and the rights / title in the said property. It is also relevant to point out the fact that the MOU dated 16-5-2007 found during the course of survey action u/s 133A has formed the basis of the declaration of additional income by the appellant, the receipt of which was not recorded in the final sale agreement. The purchaser M/s FMHPL has made the payment to Shri. Lohade by way of cheque on different dates and which had also been confirmed by Shri. Lohade during the assessment proceedings. Moreover, the Assessing Officer has also accepted the contents of the MOU as true and correct for making the addition and also the payment to other related persons to the transaction except the payment made to Shri. Lohade held as for non-business consideration is apparently' not correct in view of the fact and circumstances of the case.

5.3 During the assessment proceedings of Shri. Sanjay Lohade, the Assessing Officer in view of the direction of the Addl. CIT, Ahmednagar Range u/s 144A held the aforesaid amount of Rs. 3 crores to be taxable as brokerage or commission in the hands of Shri. Lohade and thus, the role of Shri. Lohade inthe transaction has not been denied. In the appeal preferred by Shri. Lohade before the CIT(A)-I Pune, in its appellate order dated 02-11-2012, the Ld. CIT has upheld the addition .made by the Assessing Officer treating the receipts of the amount of Rs. 3 crores as taxable and treated as earnings from commission and brokerage by the Assessing Officer. Thus, the contention of the appellant has considerable force that the factual points stated in the MOU found during survey, the A.O. has accepted the contents as true and correct for making the addition of Rs. 2,11,46,600/- and when the MOU is considered to be true and genuine, to hold the payment of Shri Lohade to be for non-business consideration is totally incorrect. The document found during survey has to be considered as a whole and those facts which favour the appellant cannot be totally ignored and the notings on the document cannot be overlooked. 12

The facts brought on record do indicate that the purchaser, FMHPL after evaluating the interest in the lands of Shri Lohade and after negotiating for the amount, paid the amount on their own behest as against the same held to be paid on behalf of the appellant. In any case the entire amount has been taxed in the case of Shri Lohade as discussed above.

5.4 In view of the above facts the addition made by the Assessing Officer is directed to be deleted and ground of appeal No. 3 is liable to be allowed."

8. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us.

9. The Ld. Departmental Representative heavily relied on the

order of the AO.

10. The Ld. Counsel for the assessee on the other hand while

heavily relying on the order of CIT(A) submitted that the Kadam

family, the original land owners were the owners of 161 Ares of

land. They entered into an MOU with Mr.Pradeep Dhorje on 01-

10-1995 who agreed to purchase the entire land of 81 Ares

situated at Survey No.5/1 as well as entire land of 80 Ares

situated at Survey No.5/1B Ares totaling to 161 Ares from the

Kadam family. Inspite of this existing agreement the members

of the Kadam family sold 80 Ares of land on Survey No.5-1/B on

08-12-2005 to 8 different buyers each one buying 10 Ares.

Mr.Pradeep Dhorje filed a civil suit bearing No.1006/1996

against the Kadam family as well as those 8 buyers for specific

performance on the basis of MOU dated 01-10-1995 as

according to him the deal was illegal in view of the MOU dated

01-10-95 and the Kadam family could not have executed the

sale deeds on 08-01-1995. Thereafter on 18-08-1999 on the

basis of MOU a settlement was arrived between Pradeep Dhorje

and 8 buyers who together had purchased the land at Survey

No.5/1B totaling to 80 Area by which Mr.Pradeep Dhorje gave 13

up his right of specific performance in respect of said land in

Survey No. 5/1B admeasuring 80 Ares. The civil suit however

continued with respect to the remaining land at Survey No.

5/1A, i.e. 81 Ares. In the existence of this special suit Mr.

Pradeep Dhorje agreed to sell 32 Ares of the said land in Survey

No5/1A to the respondent on 11-10-2000 for Rs. 6 lakhs and in

the same MOU he also transferred his right in respect of the civil

suit 1006/1996 in favour of the respondent. In due course on

16-07-2001 Mr. Pradeep Dhorje executed MOU with the

respondent and Mr. Sanjay Lohade and also the Power of

Attorney in favour of Sanjay Lohade. As per MOU at para 9 on

page 4 there is a mention to the effect that the respondent and

Sanjay Lohade as well as Kadam family had made the

negotiations under which Sanjay Lohade agreed to obtain the

development rights and/or to purchase the said land at Survey

No.5/1A from the Kadam faily either in his own name or in the

name of his nominees. Mr. Pradeep Dhorje accorded his

consent and agreed to execute the required deeds and

documents as may be necessary for Mr.Sanjay Lohade in

respect of said land at Survey No.5/1A. The respondent also

agreed for the transactions to be entered into by the said Kadam

family with Mr.Sanjay N. Lohade for the said land. In addition to

this MOU, Mr. Sanjay Lohade has also been given the specific

power of attorney on 16/07/2001 i.e. on the same date. In

due course said Mr. Sanjay Lohade did everything necessary in

the matter in negotiating the land deal as well as agreed to

withdraw the said special civil suit No. 1006/1996 without

which further finalization of deal would not have not been

possible. The respondent had purchased 9 Ares out of 81

Ares of S. No. 5/1A from Smt. Satam Sulbha on 11/8/2005 and 14

also executed development agreement with the said Smt. Sulbha

Satam on 08/05/2006, for the agreed consideration of

Rs.31,50,000/-. The respondent also purchased 32 Ares from

Mr. Pradeep Dhorje on 11/10/2000 as stated earlier. It is this

entire land of 41 Ares which was the subject matter of Civil Suit

No. 1006/1996. In order to sell this land of 41 Ares it was

necessary to have the settlement of the said Civil Suit No.

1006/1996. The original land owners i.e. Kadam families were

the main hurdle or obstacle who were hostile and seriously

contesting the Civil Suit.

11. Mr. Pradeep Dhorje and the respondent found themselves

incapable to continue with this legal battle almost endlessly for a

long time and from the view point of the assessee he had to pay

a lot of toll both in monetary terms and loss of business. It was

therefore purely out of business prudency the respondent and

Mr. Pradeep Dhorje had to bring in Mr. Sanjay Lohade who

assured to do everything necessary for attending the complicated

litigation i.e. Civil Suit No. 1006/1996 including to deal with the

original land owners i.e. Kadam family. Mr. Sanjay Lohade had

also agreed to obtain the development right in respect of the land

under suit. The respondent and Mr. Pradeep Dhorje accordingly

executed power of attorney as well as MOU on 16/07/2001 by

which Mr. Sanjay Lohade virtually acquired irrevocable control

over the said Civil Suit as well as the land involved in the said

Suit. In due course, i.e. after a period of 6 years Mr. Sanjay

Lohade could bring the Kadam family to amicable settlement in

the year 2007 and simultaneously respondent agreed to enter

into MOU dated 16/05/2007. Mr. Sanjay Lohade accordingly

withdrew the said Civil Suit No. 1006/1996. Mr. Sanjay Lohade 15

also agreed to give up his right of obtaining development

agreement in his favour as agreed by the respondent and Mr.

Pradeep Dhorje as per MOU dated 16/07/2001.

12. The Ld. Counsel for the assessee drew the attention of the

Bench to the MOU dated 16-05-2007 which was found during

the course of survey on 12-03-2008 which shows the bifurcation

of the amount of Rs.9,26,46,600/-. As per the bifurcation an

amount of Rs.3,40,00,000/- to be paid to Kadam sisters and an

amount of Rs.25 lakhs towards expenses such as stamp duty,

Rs.50 lakhs to Mr.Kailash N. Wani, i.e. the assessee towards

compensation, Rs. 3 crores to Mr. Sanjay Nemichand Lohade for

surrendering right and an amount of Rs.2,11,46,600/- to the

assessee in shape of cash. He submitted that the assessee has

offered the cash component of Rs.2,11,46,600/-. The first 3

items are accepted by the AO. The only dispute is regarding the

amount of Rs.3 crores paid to Mr. Sanjay Nemichand Lohade

for surrendering his rights. He submitted that the assessee sold

the land to M/s. Full Moon Housing Pvt. Ltd. who wanted to

purchase the plot free of any defect. Therefore, it was the

purchaser who itself has decided the terms of payment

including the amount to be paid to Kadam family, Mr.Sanjay

Lohade and to the assessee. He submitted that the observation

of the AO that Mr.Sanjay Lohade had no locus standi is

completely wrong because he was given not only the power of

attorney but was also given the right to obtain the development

agreement and purchase the said land in his name. The AO

completely ignored the civil suit pending vide Civil Suit

No.1006/1996. Since Sanjay Lohade has effective control over

the entire litigation as well as the land and since the respondent 16

could not have entered into MOU with M/s. Full Moon Housing

Pvt. Ltd. and since all those complicated issues involved in the

civil suit including bringing the Kadam family to the settlement

terms are finally set at rest, therefore, it is incorrect to say that

the amount of Rs.3 crores paid to Sanjay Lohade was at the

instance of the assessee.

12.1 He submitted that even if the income is treated as

business income, then also expenditure of Rs.3 crores will be

allowed as expenditure u/s.37(1) of the I.T. Act towards

furtherance of business.

12.2 Referring to the decision of the Hon'ble Bombay High

Court in the case of CIT Vs. Sales Magnesite Pvt. Ltd. reported

in 214 ITR 1 he submitted that the Hon'ble High Court in the

said decision has held that the payment of compensation by the

assessee to its erstwhile sole selling agent for loss of the sole

selling agency was an allowable deduction u/s.37 of the I.T. Act.

He submitted that the AO has accepted the contents of the MOU

found during the course of survey as true and correct for

making the addition and also allowed the payment to other

related persons to the transaction except payment made to

Sanjay Lohade. He submitted that the amount of Rs.3 crores

has been taxed in the hands of Sanjay Lohade as per the

direction of the Addl.CIT, Ahmednagar u/s.144. The same has

been upheld by the CIT(A) vide appeal order dated 02-11-2012.

He submitted that the document found during the course of

survey has to be considered as a whole and those points which

favour the assessee cannot be totally ignored and the notings on

the document cannot be overlooked. For the above proposition

he relied on the decision of the Pune Bench of the Tribunal in 17

the case of Chander Mohan Mehta Vs. ACIT reported in 71 ITD

245 where it has been held that the statement had to be

considered and accepted as a whole and Revenue could not be

permitted to use that part of statement which was beneficial to

it and reject the other part of statement which was detrimental

to it. The Ld. Counsel for the assessee also relied on the

following decisions :

i. Ahmed G.H. Ariff Vs. CWT (1970) reported in 76 ITR 471 (SC) ii. Pandit Lakshmi-kant Jha Vs. CWT reported in (1973) 90 ITR 97 (SC) iii. CIT Vs. Tata Services Ltd. reported in (1980) 122 ITR 594 (Bom.) iv. CIT Vs. Sterling Investment Corporation Ltd. reported in (1980) 123 ITR 441 ( Bom.) v. CWT Vs. Ashokkumar Ramanlal reported in (1967) 63 ITR 133 (Guj.)

He accordingly submitted that the order of Ld.CIT(A) being in

accordance with law has to be upheld and the grounds by the

Revenue should be dismissed.

13. We have considered the rival arguments made by both the

sides, perused the orders of the Assessing Officer and the CIT(A)

and the Paper Book filed on behalf of the assessee. We have also

considered the various decisions cited before us. We find in the

instant case a survey action u/s.133A of the I.T. Act was

conducted in the business premises of the assessee during

which an MOU dated 16-05-2007 was impounded. As per the

said MOU land admeasuring 41 Ares is to be purchased by M/s.

Full Moon Housing Pvt. Ltd. for a total consideration of

Rs.9,26,46,600/- from the assessee. The bifurcation of payment

of Rs.9,26,46,600/- is as under :

18

1. Rs.3,40,00,000/- To Kadam sisters (Original owners)

2. Rs.25,00,000/- For expenses such as stamp duty etc.

3. Rs.50,00,000/- To Shri Kailash B. Wani (as mobadla)

4. Rs.3,00,00,000/- To shri Sanjay Nemichand Lohade (For surrendering rights)

5. Rs.2,11,46,600/- To be paid to the assessee in cash

-------------------------

TOTAL Rs.9,26,46,600/-

-------------------------

The amount of Rs.2,11,46,600/- which was received by the

assessee in cash was offered as additional income in the

statement of the assessee recorded during the course of survey.

So far as the other 4 items are concerned the AO accepted the

items 1, 2 and 3 above as genuine while he doubted the amount

of Rs.3 crores paid to Mr. Sanjay Nemichand Lohade for

surrendering his rights. While doing so, The AO was of the

opinion that the amount of Rs. 3 crores was paid to Shri Lohade

at the behest of the assessee and in fact this money belongs to

the assessee. Further according to the AO Mr. Sanjay

Nemichand Lohade did not enjoy or had any right in the

property transacted which was eventually sold to M/s. Full

Moon Housing Pvt. Ltd. According to the AO in the transfer of

land the role of Mr. Sanjay N. Lohade was limited to the

withdrawal of the civil suit from the court in terms of the powers

of attorney. It is also the contention of the AO that Mr. Sanjay

N. Lohade had no locus standi and he had no effective control

over the entire litigation as well as the land. In view of the above

and in view of the reasonings given in the preceding paragraphs

the AO added the amount of Rs.3 crores in the hands of the

assessee.

19

13.1 We find the Ld.CIT(A) deleted the addition on the ground

that the AO had erroneously interpreted the MOU as well as the

statements of Mr. Arvind Jain, Director of M/s. Full Moon

Housing Pvt. Ltd., i.e. the purchaser and the statement given by

Mr. Sanjay N. Lohade. According to the Ld.CIT(A) when the AO

has accepted the other contents of the MOU as genuine he

should not have doubted the payment made to Mr. Sanjay N.

Lohade as for non business consideration. Further, the CIT(A)

also observed that the amount of Rs. 3 crores received by Mr.

Sanjay N. Lohade has been treated as taxable being earning from

commission and brokerage by the AO as per the direction of the

Addl.CIT, Ahmednagar Range which has been upheld by the

CIT(A). It is also the observation of the CIT(A) that the document

found during survey has to be considered as a whole and those

facts which favour the assessee cannot be totally ignored.

13.2 We do not find any infirmity in the order of the CIT(A)

deleting the addition. As mentioned earlier, the MOU was found

during the course of survey. Out of the 5 entries totalling to

Rs.9,26,46,600/- the amount of Rs.2,11,46,600/- received by

the assessee in cash was offered by him as additional income

during the course of survey. The assessee has honoured this

and included the same in his return of income. The Ist 3 items

are accepted by the AO as genuine, therefore, we fail to

understand as to how and why the amount of Rs. 3 cores should

not be held as genuine as business expenditure when the same

was paid to Mr. Lohade for surrendering his rights as per the

MOU. Further, the same amount has been paid by account

payee cheque and the amount has been taxed as

brokerage/commission income in the hands of Mr. Sanjay N. 20

Lohade as per the direction of the Addl.CIT and upheld by the

CIT(A).

13.3 We find clause 9 of the MOU dated 16-07-2001 reads as

under where Party No.3 is Mr. Sanjay N. Lohade and Party No.2

is the assessee ,i.e. Mr. Kailash Babulal Wani :

"9. Similarly, further negotiation took place between the Party No.2 of the one part, the Party No.3 of the second part and said Kadam of the third part and accordingly, the Party No.3 decided to obtain development rights and/or purchase the said Plot-A from said Kadam, either in his name or in the names of his nominees, at the sole discretion of the Party No.3".

13.4 We further find that Mr. Arvind Jain, Director of M/s. Full

Moon Housing Pvt. Ltd. in his statement recorded u/s.131 on

oath on 29-11-2010 in his reply to Question No.25 recorded

u/s.131 on oath on 29-11-2010 has answered as under :

"Q.25 I hope that with the break you may have remembered the facts. You are given a further opportunity to state the details about the discussions with Shri Lohade?

Ans. Sri Lohade was expecting an amount of Rs. 4 crores and we were ready for a payment upto Rs. 3 crores."

13.5 Similarly, we find Mr. Sanjay N. Lohade in his reply to

Question Nos. 16, 17, 22, 23, 24 and 25 has replied as under :

"Q.16 Give details of Spl.Civil Suit No.1006/1996 before the Civil Judge, Sr. Division, Pune?

Ans. This case was filed by Shri Pradeep Dorje against Mrs. Kadam and Mr. Dorje had given rights to me to continue or withdraw the suit.

Q.17 What was the Civil Suit?

Ans. Mr. Pradeep Dorje had MOU duly signed by Mrs. Kadam and other owners of the property in respect of the property mentioned at Q.No.7 and the owners were not signing the documents required for transfer of such property to Mr. Dorje. Accordingly, Mr. Dorje had filed the civil suit against the property owners.

Q.22 The property in question finally has been purchased by Foolmoon Housing Pvt. Ltd. Please state as to what you have received from Foolmoon Housing Pvt. Ltd. and the mode of receipt of money by you?

21

Ans. Rs.3 crores received by account payee crossed cheque. The money was received from 2007 to 2010.

Q.23 For receipt of aforesaid money, what did you do as quit-pro- quo?

Ans. I filed affidavit for withdrawal of civil suit which was pending before the Civil Court.

Q.24 How, the money received of Rs.3 crores from Foolmoon has been accounted for and offer3ed to tax? During the proceedings of summons a computation sheet has been filed which is showing sale consideration of Rs.3 crores of the land in question and exemption of u/s.54F has been claimed of Rs.3.25 crores. You may explain with any supporting evidences, that at the first place when the property was not belonging to you, how the money received is shown as sale consideration, in which you only had withdrawn Civil Suit in the name of Shri Dorje? Also provide copy of the affidavit filed before the Civil Court, withdrawing the civil suit and copy of any other document, deed which you may have signed in favour of Foolmoon Housing Pvt. Ltd.,?

Ans. I have not shown the amount of Rs.3 crores in my books of accounts. As and when the money was received out of Rs. 3 crores the same was shown as "Advance' in my books of accounts and no portion of it has been offered to tax till date. The computation sheet filed is my intention to revise the return and to offer the money to tax in the year ended on 31-03-2008.

Q.25. have you signed any deed/agreement/document etc. in favour of Shri Kailash Wani and if yes when and produce copy of such document?

Ans. No and never."

13.6 The above replies clearly and categorically point one thing

that the land in question was not free from litigation and civil

suit was pending. Therefore, we find force in the argument of

the Ld. Counsel for the assessee that the purchaser M/s. Full

Moon Housing Pvt. Ltd. after evaluating the interest in the land

of Mr. Sanjay N. Lohade and after negotiating for the amount

paid the amount of Rs.3 crores on their behalf and not on behalf

of the assessee. It was the purchase who itself decided the

terms of payment including the amount to be paid to Kadam

Family, Mr. Sanjay N. Lohade and to the respondent and

therefore the AO's observation that the said purchaser made the

payment to Mr. Sanjay N. Lohade at the behest of the 22

respondent, in our opinion, is incorrect. Further, in view of the

above facts, the observation of the AO that Mr. Sanjay N. Lohade

had no locus standi is also incorrect since Mr. Sanjay N. Lohade

was given not only Power of Attorney but was also given the right

to obtain the development agreement and purchase the said land

in his name and for that purpose the entire litigation involved in

Civil Suit No.1006/1996 was also required to be attended by

him at his own cost and responsibility.

13.7 In case of transactions in immovable properties the

purchaser will always try to buy the property free of litigation.

When the land in question is not free from litigation and a civil

suit is pending, a fact not disputed by the AO himself, therefore,

the payment to Mr. Sanjay N. Lohade by M/s. Full Moon

Housing Pvt. Ltd. either at the instance of the assessee or

otherwise has to be allowed as deduction from the sale proceeds.

13.8 Further, Mr. Sanjay N. Lohade vide his letter dated 20-10-

2010 addressed to the Addl.CIT Range-3, Pune has stated that

he has received an amount of Rs.3 crores on various dates by

cheque for releasing all rights and for withdrawing the Civil

Special Court Suit No.1006/1996 for Sy.No.5, Baner. The

contents of the said letter reads as under :

"From Sanjay Lohade Unique Chambers, F.C. Road, Tukaram Paduka Chowk, Pune - 411005

Date : 20th Oct, 2010

To The Additional Comm. of Income Tax, Range-3, Pune

Respected Sir,

I, the undersigned do hereby state and confirm as under : 23

1. That I have received Rs.3,00,00,00.00 by account payee cheque from M/s. Foolmoon Housing Pvt. Ltd., details of which are under :

Date Ch.No. Amount 30-08-2007 523128 11,00,000/- 01-11-2007 240271 50,00,000/- 16-11-2007 240272 25,00,000/- 12-12-2007 249704 25,00,000/- 05-03-2008 240293 50,00,000/- 05-03-2008 240292 50,00,000/- 10-03-2008 249734 50,00,000/- 11-10-2010 RTGS 39,00,000/- 3,00,00,000/-

2. That the said amount is received by me for releasing all rights and for withdrawing the civil Special Court Suit No.1006/1996 for S.No.5 Baner.

Thanking you,

Yours Truly, Sd/-

Sanjay Lohade"

13.9 The Hon'ble Bombay High Court in the case of CIT Vs.

Sales Magnesite Pvt. Ltd. has held that to decide whether the

expenditure is incurred for the purpose of the business and

allowable as deduction u/s.37 of the I.T. Act, it is not essential

that it should be necessary, legally or otherwise, to incur the

same or that it should directly and immediately benefit the

business of the assessee. Even expenditure incurred voluntarily

on the ground of commercial expediency and in order indirectly

to facilitate the carrying on of the business would be deductible

u/s.37. The question whether it was necessary for commercial

expediency or not is a question that has to be decided from the

point of view of the businessman and not by the subjective

standard of reasonableness of the revenue. The question must

be viewed in the larger context of business interest or

commercial expediency. No abstract or pedantic view can be

taken in the matter. In the instant case, the assessee is engaged 24

in the business of trading in land and property development. No

buyer will buy any property when the property in question is

disputed. It is also the responsibility of the seller to sell the

property free of litigation from any encumbrance. Therefore,

even if the amount of Rs.3 crores would have been paid by the

assessee to Mr. Sanjay N. Lohade for giving free and peaceful

possession of the land to M/s. Full Moon Housing Pvt. Ltd. the

said amount would have been allowed as deduction from the

hands of Shri Kailash Babulal Wani, i.e. the assessee.

Therefore, in our opinion, it is immaterial as to whether the

amount has been paid to Mr. Sanjay N. Lohade by M/s. Full

Moon Housing Pvt. Ltd. at the instance of the assessee or the

assessee has paid directly to Mr. Sanjay N. Lohade from the total

consideration. As mentioned earlier in the preceding

paragraphs, the MOU was impounded, therefore, the contents of

the MOU has to be considered and accepted as a whole. The

revenue cannot be permitted to use a part of the MOU as correct

and the other part as incorrect. Since the document impounded

from the premises of the assessee shows payment of Rs. 3 cores

to Mr. Sanjay N. Lohade which has been assessed in his hands

as commission income and which has been upheld by the

CIT(A), therefore, we find no infirmity in the order of the CIT(A)

deleting the addition of Rs.3 crores from the hands of the

assessee. In this view of the matter and in view of the detailed

reasonings given by the CIT(A) while deleting the addition we

find no infirmity in his order and therefore, uphold the same.

Grounds of appeal No. 1 to 3 by the Revenue are accordingly

dismissed.

25

14. Ground of appeal No.4 by the Revenue reads as under :

"(4) The learned Commissioner of Income-tax (Appeals) erred in deleting Rs.4,90,000/- though the assessee could explain the expenses of Rs.20,10,000/- out of total expenses of Rs.25 lacs in the course of assessment as well as appellate proceedings."

15. Facts of the case, in brief, are that during the assessment

proceedings the Assessing Officer noted that the purchaser

M/s.FMHPL had paid Rs. 25 lakhs to the assessee for incurring

the expenditure for registration, stamp etc. The Assessing Officer

sought the details of the expenses incurred with supporting

evidence. From the various details furnished by the assessee,

the Assessing Officer found that the assessee's documents of

registration of land as per Index II showed an amount of

registration fee to the tune of 17 lakhs and Rs. 2.5 lakhs and

registration charges of Rs. 30,000/- for two registrations, which

totalled to Rs. 20,10,000/-. For balance amount of

Rs.4,90,000/ - the assessee did not offer any explanation. The

Assessing Officer therefore held the same to be unspent and

added the same to the total income of the assessee.

16. Before CIT(A) the assessee submitted that during the

assessment proceedings vide letter dated 28-10-2010 the details

of the expenditure incurred on stamps, registration etc., were

submitted the details of which are as under :

Particulars Amount (in Rs.) Siddharth Raajagadia Document Franking 2,50,010 Siddharth Raajagadia's Document Registration 30,000 Mohit Astekar's Document Franking 5,40,628 Sudhir Yeole's Document Registration 5,94,691 Sunil Wani's Document Registration Franking 5,94,691 Above three Document Registration DD 30,000 FHPL's Document Registration Franking 4,15,010 FHPL's Document Registration DD 30,000 Other Exp. (Legal Fees) 14,970 26

Total Expenses of Registration 25,00,000

The assessee submitted that the Assessing Officer on the basis

of some information which is unknown to the assessee held that

the assessee had incurred expenditure of Rs.20,10,000/- only

and added the balance amount of Rs. 4,10,000/- to the total

income.

17. Based on the arguments advanced by the assessee, the

Ld.CIT(A) deleted the addition. While doing so he observed that

the Assessing Officer did not examine the details during the

assessment proceedings which were filed by the assessee nor

carried out any enquiry before making the aforesaid addition.

The details which were submitted by the assessee before the

Assessing Officer clearly indicate the nature of expenses and

also proves the incurrence of expenditure.

18. Aggrieved with such order of the CIT(A) the Revenue is in

appeal before us.

19. We have considered the rival arguments made by both the

sides. From page 35 of the paper book we find the assessee has

given the details of expenditure of Rs.25,00,000/- the details of

which are already given above at para 16. It is not known from

where the Assessing Officer had taken the figure of

Rs.4,10,000/-. We find except the other expenses/legal fees of

Rs.14,970/- the balance expenses are related to document

franking and document registration demand draft. The legal

expenses of Rs.14,970/- is very nominal considering the

transactions in question. We therefore, do not find any infirmity 27

in the order of the CIT(A) deleting the addition of Rs.4,10,000/-.

The ground raised by the Revenue is accordingly dismissed.

20. In the result, the appeal filed by the Revenue is dismissed.

Pronounced in the open court on 30-06-2015.

Sd/- Sd/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER

satish Pune Dated: 30th June, 2015

Copy of the order forwarded to :

1. Assessee 2. Department 3. CIT(A)-II, Pune 4. CIT-II, Pune 5. The D.R, "A" Pune Bench 6. Guard File

By order

// True Copy //

Senior Private Secretary ITAT, Pune Benches, Pune