By Sri. A. Shankar, Sr. Counsel Andsri v. Chandrashekar, Adv., Forsri. M. Lava, Adv

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 13TH DAY OF JULY 20271 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR.ILT.A. NO.43 OF 2017 BEITWEEN M/S. TRIMM EXPORTS PRIVATE LIMITEDREP. BY ITS DIRECTOR|SRI. PATHI R. SAMPATH KUMAR,PLOT # 285, KACHANAYAKANAHALLI VILLAGEBOMMASANDRA 1ST PHASE|JIGANI INDUSTRIAL AREA, ANEKAL TALUK>BANGALORE-560105PAN: AAAC T66/73 (BY SRI. A. SHANKAR, SR. COUNSEL ANDSRI. V. CHANDRASHEKAR, ADV., FOR|SRI. M. LAVA, ADV.,) — APPELLANT| AND THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-12(4), BMTC BUILDING80 FEET ROAD, 6TH BLOCK|KORAMANGALA, BANGALORE-560095. .. RESPONDENT| (BY SRI. K.V. ARAVIND, ADV.) THIS I.T.A. IS. FILED UNDER SECTION 260-A OFI.T.ACT, 1961 ARISING OUT OF ORDER DATED 08.09.2016PASSED IN ITA NO.1646/BANG/2013, FOR THE ASSESSMENTYEAR 2009-10, PRAYING TQ: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAWSTATED ABOVE AND THE ANSWER THE SAME IN FAVOUR OFTHE APPELLANT. I]. ALLOW THE APPEAL AND SET ASIDE THE FINDINGS|TO THE EXTENT AGAINST THE APPELLANT IN THE ORDERPASSED BY THE ITAT, BENGALURU BENCH A’ BENGALURUIN ITA NO.1646/BANG/2013 DATED 08.09.2016 FOR THE|ASSESSMENT YEAR 2009-10 (ANNEXURE-A) & ETC. THIS IL.T.A. COMING ON FOR HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the assessee. The subject matter of the appealpertains to the Assessment Year 2009-10. Tne appeal wasadmitted by a Bench of this Court vide order dated|25.10.2017 on tne following substantial questions of law: a) Whether the Tribunal was justified in lawin not accepting that the compensation amount ofRs.one Crore paid by the appellant is not deductable under Section 48 of the Income TaxAct, 1961 and consequently passed a perverseorder on the facts and circumstances of the case? b) Whether the Tribunal erred in law inholding the transaction was not genuine without:appreciating the material on record wnhicn clearlyIndicatesthattheappellant hadpaidcompensation for surrender of land by the tenantand consequently passed a perverse order on thefacts and circumstances of the case?Cc) Whether the Tribunal was Justified in lawin not adjudicating the issue of levy of interestunder Section 234B and 234C of the Act, 1961 onthe facts and circumstances of the case? 2. Facts leading to filing of this appeal briefly stated aretnat the appellant is a private limited company registeredunder the Companies Act, 1956 engaged in the business ofprinting and finishing of silk sarees and fabrics. Theassessee filed its return of Income for the Assessment Year2009-10 declaring the total income of Rs.18,94,000/-. Thecase of the appellant was selected for scrutiny and theAssessing Officer issued a notice under Section 143(2) of theAct. The assessee filed a reply to the aforesaid notice on| 07.10.2010. The Assessing Officer by an order dated|30.08.2011 determined total Income of the assessee atRs.1,27,64,292/- after setting off unabsorbed depreciation.The Assessing Officer also disallowed the amount ofcompensation to the extent of Rs.1 Crore paid by the|assessee to M/s Pathi Prints (nereinafter referred to as thelessee’ for short) to vacate the leased premises and tosurrender vacant possession to the assessee. The assesseefiled an appeal before tne Commissioner of Income Tax(Appeals), whicnWaSqaismissedDY.anorderdated03.09.2013. Tne assessee thereupon filed an appeal beforethe Income Tax Appellate Tribunal (hereinafter referred to as‘the tribunal’ for short). The tribunal by an order dated08.09.7016|nasaffirmed.the.orderDassed|DYthe.Commissioner of Income Tax (Appeals). In the aforesaidfactual background, this appeal nas been filed. ‘3.Learned|Senior.counselfortneaSSCSSCECsubmitted that the assessee nad leased out the premisesvide lease deed dated 22.02.1996 for a period of 40 years toM/s Patni Prints. The assessee wanted to sell the premises leased out to the aforesaid lessee. Therefore, the assesseeentered into a deed of cancellation on 23.03.2009 with M/sPathi Prints and the assessee agreed to pay a compensationof Rs.1 Crore to the lessee to cance! the lease and to nandover the vacant possession of the property. It is furthersubmitted that the assessee thereafter, solid the portion ofthe property vide registered sale deed dated 13.05.2009 fora consideration of Rs.2.5 Crores and the lessee was aconsenting witness to the aforesaid sale deed. It is alsoargued that the lessee occupied another portion of theproperty belonging to the assessee vide lease deed dated01.04.2009. It is further submitted that the Assessing Officercannot bring to tax the rental income from the property and|simultaneously claim that compensation paid to the lesseefor vacating the premises is not a genuine transaction. It is submitted that the findings, whicn are recorded by theAssessing Officer are perverse and the Commissioner ofIncome Tax (Appeals) and tne tribunal nas affirmed the samewithout any application of mind. It is also urged that the tax|planning is permissible under the provisions of the Act. InSupport of aforesaid submissions, reliance has been placed ON GdecIsIONS In‘CIT VS. MISS PIROJA C. PATEL, (2000)|242 ITR 582 (BOM.), CIT VS. Tf. SREENIVASA RAO,(1987) 166 ITR 593 (AP), ‘UOI VS. AZADI BACHAOANDOLAN, (2003) 261 ITR 222 (MADRAS). 4On the other hand, learned counsel for the|revenue has invited the attention of this court to para 9.11 to9.2/7 of the order passed by the Assessing Officer. It isfurther submitted that the assessee did not shift thepremises and the Assessing Officer has recorded a finding offact that the lessee was in possession of the premises leasedout to him even after the sale. Therefore, the transaction inquestion has rigntly been held to be non genuine. It isfurther submitted that the aforesaid finding is a finding offact, which does not suffer from any infirmity and therefore,no interference is called for in this appeal. 5.We nave considered the submissions made by)learned counsel for the parties and nave perused the record.The issue which arises for consideration in this appeal iswhether an amount of Rs.1 Crore paid as compensation bytne appellant to the lessee can be claimed as expenses| incurred in connection with transfer of the capital asset. Theassessee was the owner of land measuring 1,077,810 squarefeet. Out of the aforesaid land, the assessee had executed alease deed in favour of the lessee on 22.02.1996 for a periodof 40 years in respect of land measuring 29,845 square feet.The assessee in the previous years had offered income to taxunder the head ‘House Property’, which was taxed by theAssessing Officer under the ‘Rental Income’. For theAssessment Year 2007-08, the assessee had offered a sum ofRs.10,05,000/- under.the.neacd‘Income.fromHouse|Property, which was assessed to tax by the AssessingOfficer. Thereafter, a deed of cancellation was executedbetween the assessee and the lessee on 23.03.2009. Thelessee was paid a sum of Rs.1 Crore to cancel the lease andto hand over vacant possession of the property. Thereafter,by a registered sale deed dated 13.05.2009, the land|measuring 29,845 square feet was sold for a consideration ofRs.2,50,00,000/- to third party. Tne aforesaid sale deed.contains a reference to the lease deed executed in favour oftne lessee as well as recital as to delivery of possession. Thelessee iS a consenting witness in the sale deed. The Assessing Officer had inspected the premises of theassessee. In the inspection report it was stated that assesseeand the lessee were in occupation of remaining portion ofland measuring 77,965 square feet. Tne aforesaid fact wasalso affirmed by partner of the lessee that the lessee is inpossession of the remaining portion of tne land. Theaforesaid inspection report no where discloses that the lesseeis in possession of the land, which was sold vide registered|sale deed dated 13.05.2009 to third parties. However, theAssessing Officer held that the claim of the assessee that thelessee was in possession in capacity as tenant in respect of29,845 square feet of land and subsequent payment ofcompensation of Rs.1 Crore to the lessee, is not genuine. Theaforesaid finding has been affirmed by the Commissioner ofIncome Tax (Appeals) as well as by the tribunal. However, it is pertinent to mention here that the assessee for theAssessment Year 2OO/7-O8 had offered an income ofRs.10,05,000/- from the lessee under the nead of HouseProperty’, which was accepted by the Assessing Officer andtne aforesaid rental income was taxed. Subsequently, it is not open for the Assessing Officer to deny the existence ofthe aforesaid transaction in the subsequent Assessment Year. 6.It is pertinent to note that lease deed was.executed in the year 1996 in favour of the lessee and wascancelled in tne year 2009 after a period of 13 years. Thereference to the lease deed is found even in the registeredsale deed dated 13.05.2009. The lessee had offered theamount received by it as income in its return. The amountwas paid by the assessee and was an expenditure incurred|wholly and exclusively for transfer of an asset and therefore,it is deductible under Section 48 of the Act. The findingsrecorded by the authorities under the Act is perverse. For theaforementioned reasons, substantial question of law Nos.1and 2 are answered in favour of tne assessee and against therevenue, In the result, the order dated 08.09.2016 passed bytne tribunal in relation to Assessment Year 2009-10 to tneextent it pertains to substantial questions of law involved inthis appeal are hereby quashed. | ���������������������������������� ����������� ������������