The assessee firm was engaged in the business of real estate and land development.  One of the partners  Dayanand Pai  entered into an agreement with MIPL in his individual capacity wherein he has agreed to transfer his part of the interest in the built up area of four properties which were proposed to be developed by various builders under JDA and as per the terms of the agreement, Dayanand Pai  shall be responsible for all the losses and consequential damages.  As per another agreement, Dayanand Pai  undertook to deliver built up area within a certain time frame, but did not hand over.  The arbitration proceedings were initiated.  Based on the arbitration award, the assessee shall refund a sum of Rs. 22 Crores and Rs. 64 Crores as compensation and accordingly, the assessee claimed a sum of Rs. 64.75 Crores as compensation paid in its return of income.  However, the AO disallowed the claim on the ground that on the date of agreement with MIPL, the assessee was not the owner of the properties.  The Commissioner (Appeals) confirmed the order of the AO.  However, on further appeal by the assessee, the Tribunal allowed the claim of the assessee u/s 37(1) of the Act. On further appeal by the Revenue, the Hon’ble Court observed that as per the provisions of Section 14 of the Indian Partnership Act, 1932, subject to contract between the partners, the property of the firm includes all properties originally brought into the stock of the firm or acquired for the firm in the course of business, that the claim for deduction of compensation was for the Asstt. Year: 2005–06, whereas the date of appointment as the arbitrator was 27-06-2005, the compromise petition was filed on 05-08-2005 and the arbitral award was passed on 30-08-2005 and accordingly held that there is no material to prove that the liability was crystalized or provided during the relevant assessment year and there is no mention in the agreement that the said  Dayanand Pai   was acting as the partner of the firm or that the properties which were the subject matter of the agreement were the properties of the firm.  Held the reasoning adopted by the Tribunal is clearly erroneous and contrary to law and hence, the substantial questions of the law are answered in favour of the Revenue and against the assessee. (AY. 2005-06)