Mumbai v. M/S. Hiranandani Lake Garden,Mumbai

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.5811 OF 2010 The Commissioner of Income Tax-12, Mumbai...Appellant. Vs. M/s. Hiranandani Lake Garden,Mumbai..Respondent. .... Mr. Suresh Kumar, for the Appellant.Mr. Atul K. Jasani, for the Respondent. .... CORAM : J. P. DEVADHAR & A.R. JOSHI, JJ. th JANUARY, 2012. DATED : 18 P.C. 1.Whether the ITAT was justified in deleting the disallowance of Rs.56,29,000/- being compensation paid by the assessee to the minor son of a partner of the assessee firm, is the question raised in this Appeal. 3.The assessee is a Firm engaged in the construction activity. Niranjan Hiranandani, Surendra Hiranandani, their family members and the HUF of Surendra Hiranandani are the partners of the Firm. During the accounting period relevant to the A.Y. in question, the assessee derived income from selling the flats in a building known as “Eternia” constructed by the assessee Firm at Powai and the same was offered to tax. 4.During the course of assessment proceedings, the Assessing Officer noticed that the assessee had repurchased some flats in the building known as “Eternia” constructed by the assessee inter alia from a son of a partner named Darshan N. Hiranandani. These flats were initially purchased by the said Darshan Hiranandani from the assessee @ Rs.750/- per sq. ft. in the assessment year 1995-96. 5.In the repurchase agreement, the repurchase was shown at Rs.750/- per sq. ft. and additional amount was paid as compensation which represented the differential amount between the market value and the purchase price of the respective flats. The Assessing Officer was of the opinion that the transaction was a device to transfer the profits of the Firm to the son of a partner and accordingly made addition of the differential amount paid by the assessee towards the repurchase of the flat. 6.On Appeal filed by the assessee, the CIT(A) deleted the disallowance. The ITAT has uphold the order of the CIT(A). 7.The argument of the Revenue is that the transaction was only a device to transfer the profits of the firm to a son of the partner of the assessee. This argument cannot be accepted because the assessee in the year 1995-96 had sold the flats in the building known as “Eternia” at the rate of Rs.750/- not only to the son of the partner but also some other third parties. Similarly, the assessee had repurchased the said flats in the assessment year in question from the son of the partner as also from the third parties by paying amount at the rate of Rs.750/- per sq. ft. towards the cost price and additional amount which represented difference between the market price and the cost price. 8.Admittedly, the amount paid as compensation to the third parties has been offered to tax and the same has been accepted by the revenue as genuine transaction. If the transaction with the third parties is accepted as genuine transaction, there is no reason as to why the transaction between the assessee and a son of the partner of the firm should not be treated as genuine transaction especially when the compensation paid by the assessee to both the parties is more or less the same. 9.In these circumstances, the decision of the ITAT in holding that the transactions in question were genuine cannot be faulted. Accordingly, we see no reason to entertain this Appeal. The appeal is accordingly dismissed. (A. R. JOSHI, J.) (J. P. DEVADHAR,J.)