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Case Law Details

Case Name : Orchid Foundations Pvt. Ltd Vs ITO (ITAT Chennai)
Appeal Number : ITA No. 2287/Chny/2017
Date of Judgement/Order : 06/07/2022
Related Assessment Year : 2014-15
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Orchid Foundations Pvt. Ltd Vs ITO (ITAT Chennai)

The intended purchaser i.e., M/s SVC made efforts for clearing the encroachments and incurred expenditure of Rs.811.75 Lacs which were paid through banking channels. The details of payment as well as the bank statement and acknowledgement / receipts were already furnished to Ld. AO during the course of assessment proceedings. Subsequent to entering into sale agreements, the property was under continuous litigation since the erstwhile owners M/s. Adippalli Kandaswamy Chetty & Chenchu Venkatasubbu Guruvajamma Charities Association filed a criminal case and claimed that the land was forcefully grabbed. Another person Mr. Lucky Lalchand also claimed leasehold rights over the 7 grounds of the property and sent a notice to the assessee and filed a plaint before the City Civil Court Chennai XVI vide OS No. 6619 of 2012 which is in further appeal. Similarly, one of the encroacher Mr. Kathir continued to be in occupation of the property against whom the assessee was pursuing civil suit. In other words, there was continuous litigation at various fronts which led SVC wanting to cancel the deal.

Since M/s SVC incurred eviction charges, it sought reimbursement of the same from the assessee and accordingly, the expenditure has been debited as work-in-progress with corresponding credit to M/s SVC. It could also be seen that the payments were made by SVC through banking channel and acknowledgment / receipts from evictees were placed before Ld. AO. The details of payment so made were furnished to lower authorities. The assessee was also able to produce two of the evictees who confirmed having received the eviction charges. Merely because the evictees did not have PAN or not assessed to tax, the same would not jeopardize the claim of the assessee. M/s SVC responded to notice u/s 133(6) and confirmed the payments. There is nothing adverse on record except for mere allegation that the transaction appeared to be collusive one and the bona-fides of the transactions were doubtful. There is no concrete material to substantiate this conclusion. It could also be seen that the assessee was into the business of real estate development and such expenditure would fulfill the test laid down u/s 37(1) and it could very well be said that the expenditure was incurred for business purposes of the assessee. To discharge the onus, the assessee had produced following documentary evidences in support of the claim: –

(i) Copy of Bank statement of M/s. Sree Venkateswara Construction duly highlighting the payments made to encroachers (Page No. 59-74 of the paper book)

(ii) Copies of receipts obtained from encroachers in respect of the payments made to them and cross referencing to the bank statement.

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July 2024