IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 10TH DAY OF JANUARY 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE RAVI V.HOSMANI I.T.A. NO.34 OF 2010 BETWEEN: M/S ESTATE REP. BY ITS MANAGING PARTNER SRI. ZIAULLA SHERRIFF SHERIEFF CENTRE, 73/1 ST. MARKS ROAD BANGALORE-560001. ... APPELLANT (By Sri. A. SHANKAR, ADV., FOR Sri. M. LAVA, ADV.,) AND: ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1) No.59, VI FLOOR, HMT BHAVAN BELLARY ROAD BANGALORE-560032. ... RESPONDENT (By Sri. K.V. ARAVIND, ADV., FOR Sri. DILIP, ADV.,) --- THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 21-8-2009 PASSED IN ITA NO.343/BNG/2008 AND OC 2 No.106/BNG/2008, FOR ASSESSMENT YEAR 1997-98, PRAYING TO FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. ALLOW APPEAL AND SET ASIDE ORDER PASSED BY ITAT BANGALORE IN ITA NO.343/BNG/2008 AND CO NO.106/BNG/2008, DATED 21-8- 2009, IN INTEREST OF JUSTICE AND EQUITY & ETC. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT Mr.A.Shankar, learned Senior counsel for appellant. Mr.K.V.Aravind, learned counsel for respondent. 2. This appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act , for short) has been filed by assessee which was admitted by Bench of this Court on following substantial questions of law: (1) Whether Tribunal was justified in law in confirming addition of Rs.54 lakhs in respect of demurrages for delay in execution of project without considering terms of joint venture agreement and 3 more so when appellant maintaining books of account under merchantile system of accounting? 2) Whether Tribunal was correct in law in holding that joint development agreement does not constitute Association of persons and consequently income is liable for assessment under status of association of persons? 3. appellant is partnership firm which is engaged in business of real estate development, construction and sale of flats under name and style of Estate . appellant filed its original return of income declaring its total income of `95,04,431/- on 31.10.1997 and subsequently on 31.03.1998 filed revised return declaring same income with some changes in balances of sister concerns in balance sheet. case of appellant was selected for scrutiny by Assessing Officer. Thereupon, notice was issued to appellant and all details were requisitioned from him. appellant claimed project 4 expenses account under two heads namely, liquidated damages of `60,00,000/- and demurrages for delay in execution of project to tune of `54,00,000/-. Assessing Officer, by order dated 31.03.2000, made two additions of `60,00,000/- and `54,00,000/- in addition to declared income. 4. Being aggrieved, appellant filed appeal before Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) by order dated 16.01.2008, by taking into account remand report by Additional Commissioner of Income Tax, allowed appeal in part and extended benefit of `35,32,538/- as against claim of `50,00,000/- and did not grant any relief in respect of amount of `10,00,000/- under head of liquidated damages. Commissioner of Income Tax (Appeals) allowed claim of appellant in respect of demurrages for delay in execution of project. revenue thereupon filed 5 appeal before Tribunal. appellant also filed cross objection in aforesaid appeal. Tribunal by order dated 21.08.2009 reversed order of Commissioner of Income Tax (Appeals) and restored order passed by Assessing Officer. In aforesaid factual background, appellant has approached this Court. 5. Learned Senior counsel for appellant submitted that authorities failed to take into account joint venture agreement dated 19.09.1992. It is submitted that as per agreement with owners, appellant was supposed to deliver their share of buildings on or before 30.06.1995, however, actual delivery took place on 30.09.1996. It is also pointed out that under agreement owners were entitled to sum of `12,000/- per day of delay that is amount of `3,60,000/- per month. There was delay of 15 months in completion of project and therefore, owners 6 were entitled to total demurrages for delay in execution of project to tune of `54,00,000/-. Our attention has also been invited to clause 4 of joint venture agreement dated 19.09.1992. In support of aforesaid submission, it is also argued that Assessing Officer has not disputed fact of origin of liability and entry in books. It is also pointed out that appellant is maintaining books of accounts under mercantile system of accounting and therefore, appellant mentioned liability in books of accounts for assessment year 1997-98 on principles of accountancy. It is also urged that however Tribunal neither considered aforesaid aspect of matter nor remand report submitted by Additional Commissioner of Income Tax. Tribunal failed to appreciate that expenses had been debited by appellant based on agreement and not solely on basis of arbitration award. It is also pointed out that Tribunal grossly erred in reversing order of 7 Commissioner of Income Tax (Appeals) by holding that liability for such expenditure has not accrued in financial year relevant to assessment year under consideration as liability was disputed as well. Even after settlement of such liability, appellant has not offered amount for tax. Alternatively, it is submitted that if appellant s claim towards demurrages of `54,00,000/- is disallowed, there is consequent reduction in value of cost of construction and therefore, valuation of closing stock for year undergoes change to extent of `14,69,820/- which eventually results in reduction of profits to that extent. In support of aforesaid submission, learned counsel for appellant has placed reliance on decisions in case of CALCUTTA CO. LTD Vs. CIT 37 ITR 1(SC), BHARAT EARTH MOVERS Vs. CIT 245 ITR 428 (SC), METAL BOX COMPANY OF INDIA LTD Vs. THEIR WORKMEN 73 ITR 53 (SC), JIWANRAM SHEODUTTRAI Vs. CIT 279 ITR 512 (Cal), CIT Vs. 8 BURHWAL SUGAR MILLS CO. LTD. 82 ITR 784 (ALL) AND SASSOON J DAVID AND CO. P LTD Vs. CIT 118 ITR 261 (SC). 6. On other hand, learned counsel for revenue has taken us through order of assessment and has submitted that appellant failed to avail of opportunity of cross-examination which was afforded to it. It is further submitted that Assessing Officer, on basis of meticulous appreciation of evidence on record, has disallowed claims of appellant for liquidated damages and demurrages for delay in completion of project. It is also urged that liability in question is not crystallized liability and therefore, other side cannot enforce it. It is further pointed out that deed of settlement has no co-relation with liability of appellant for demurrage on account of delay in completion of project. It is also urged that findings of fact had 9 been recorded by Assessing Officer which has rightly been restored by Tribunal. 7. We have considered submissions made by learned counsel for parties and have perused record. From perusal of order passed by Tribunal, it is evident that order passed by Tribunal is based on opinion given by Mr.S.Janardhan, advocate as well as fact that appellant has not been able to produce original deed of arbitration. Tribunal therefore, has doubted genuineness of entry made in books of accounts by appellant to tune of `54,00,000/-. Ordinarily, we would have dealt with issue in this appeal itself. However, since revenue has disputed genuineness of entry made in books of accounts, therefore, we are not inclined to decide issue whether Tribunal was justified in confirming addition of `54,00,000/- in respect of demurrages for 10 delay in execution of project. Tribunal has failed to take into account remand report of Additional Commissioner of Income Tax and joint venture agreement dated 19.09.1992. 8. Therefore, we deem it appropriate to set aside order passed by Income Tax Appellate Tribunal. Needless to state that it would be open to Tribunal to pass such order as it may deem fit in accordance with law. Tribunal, after affording opportunity of hearing to parties, shall decide appeal preferably within period of three months from date of receipt of certified copy of order passed today. It is also clarified that this Court has not expressed any opinion on merits of case and all contentions which are available to parties in law are kept open. Accordingly, substantial questions of law are answered. 11 9. In view of order of remand, Tribunal shall be at liberty to deal with issues involved in substantial questions of law framed by Bench of this Court by order dated 21.04.2010. Accordingly, appeal is disposed of. Sd/- JUDGE Sd/- JUDGE RV Estate v. Assistant Commissioner of Income-tax, Circle-1(1), Bangalore