DCIT, Circle - 8, Kolkata, Kolkata V. M/s. Entrepreneurs (Calcutta) Pvt. Ltd., Kolkata

ITA 1677/KOL/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99707 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 26-08-2010
• Court: TRIBUNAL
• Department Lawyers: NILOY BARAN SOM JCITLD
• Assessee Lawyers: A K TULSIAN FCA LD
• Keywords: Capital asset; Principle of natural justice; Non-deduction of tax
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , C BENCH, KOLKATA [BEFORE HON BLE SHRI MAHAVIR SINGH, JM & HON BLE SHRI B.P.JAIN , AM ] I.T.A NO . 1 677 /KOL/201 0 A.Y 2006 - 07 D .C.I.T, C IRCLE - 8 , KOLKATA VS. M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD PAN: AAAC E 6368G ( APPELLANT) ( RESPONDENT ) FOR THE APPELLANT: S HRI NILOY BARAN SOM, JCIT/LD.DR FOR THE RESPONDENT : SHRI A.K TULSIAN, FCA, LD.AR DATE OF HEARING: 29 - 06 - 2015 DATE OF PRONOUNCEMENT: 13/8/ 2015 ORDER SHRI B.P.JAIN:AM TH IS APPEAL OF THE REVENUE ARISES FROM THE ORDER OF THE LD. CIT(A), VIII, KOLKATA DATED 25 - 06 - 2010 FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. T H AT THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW BY HOLDING THAT THE TRANSACTION OF RS.5,17,48,439/ - IS NOT A SHAM TRA NSACTION AS PURCHASE AND SUBSEQUENT SALE OF LAND HAS OCCURRED AND THE MONEY AS CALLED FOR BY THE AGREEMENT HAS BEEN PAID BY THE APPELLANT AND THAT THERE WAS NO VIOLATION OF PROVISIONS CONTAINED IN CHAPTER XVII - B OF THE ACT. 2. THAT THE IMPUGNED ORDER OF T HE CIT(A) IS PERVERSE AND DESERVES TO BE SET ASIDE AND THE ORDER OF THE A TO BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR ABROGATE ANY GROUND OF APPEAL AT THE TIME OF HEARING. 3 . BRIEF FACTS AS EMANATING FROM THE ORDER OF THE AO , F OR THE SAKE OF CONVENIENCE ARE REPRODUCED HEREIN BELOW: - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE - COMPANY PAID SUM OF RS.5,17,48,439/ - TO M/S. ALISHAN ESTATES PVT. LTD ( A KOLKATA BASED PARTY) AS COMPENSATION PAYMENT O N THE BASIS OF THE A GREEMENT DATED 10 TH JULY 2005. IMPORTANT PORTION OF THIS AGREEMENT IS REPRODUCED BELOW: - (I) THAT ALISHAN ESTATES PVT. LTD SHALL VERIFY AND CHECK ALL THE LITTLE DOCUMENT OF LAND TO ENSURE THE AUTHENTICITY OF THE TITLE OF THE SELLER OF L AND. (II) THAT ALISHAN ESTATES PVT. LTD SHALL CONTACT TO THE SELLER OF LAND AND MAKE ALL NEGOTIATIONS IN RELATION TO COST PRICE OF LAND WITH THE SELLERS OF LAND. (III) THAT ALISHAN ESTATES PVT. LTD SHALL ARRANGE THE DOCUMENT TO BE EXECUTED FOR THE PURPOSE OF TRANSFER OF LAND IN THE NAME OF M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD . (IV) THAT ALISHAN ESTATES PVT. LTD SHALL IDENTIFY THE BUYERS AND MAKE NECESSARY ARRANGEMENT TO SELL LAND BY M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD IN NEAR FUTURE. 2 ITA NO . 1677 /KOL/201 0 - C - BPJ(AM) M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD (V ) THAT M/S. ENT REPRENEURS (CALCUTTA) PVT. LTD RECEIVES AND REALIZES THE CONSIDERATION AGAINST THE SALE OF LAND WITH IN PERIOD OF 6 MONTH FROM THE DATE OF SALE OF LAND. (VI) THAT ALISHAN ESTATES PVT. LTD SHALL ENSURE THAT THE TOTAL AMOUNT OF PROFIT MADE BY M/S. ENTREPREN EURS (CALCUTTA) PVT. LTD ON SALE OF LAND SHALL NOT FALL BELOW TO THE EXTENT OF 90% OF THE COST OF LAND TO M/S. ENTRREPRENEURS (CALCUTTA) PVT. LTD AGAINST ABOVE, ALISHAN ESTATES PVT. LTD WAS ENTITLED TO CLAIM SHARE IN THE PROFIT ON SALE OF LAND REALIZED BY M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD IN THE RATIO OF 75% TO ALISHAN ESTATES PVT. LTD AND 25% TO M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD . THE COPY OF AGREEMENT IS ENCLOSED AT ANNEXURE - 1 . 2.3 THE NATURE OF ALLEGED SERVICES PROVIDED BY SHRI AJAY AGARWAL OF M/S. ALISHAN ESTATES PVT. LTD SHOW THAT IT IS HIGHLY SPECIALIZED IN NATURE. VERIFYING AND CHECKING ALL THE TITLE DEEDS OF LAND AND ENSURING THE AUTHENTICITY OF THE TITLE OF THE SELLER OF LAND NEED SERVICE OF AN EXPERT PERSON. NEGOTIATION WITH SELLER OF L AND IN RELATION TO THE PRICES FINALIZED ALSO REQUIRES GREAT NEGOTIATION SKILL. IT IS ALSO A SPECIALIZED SERVICE. ARRANGEMENT OF DOCUMENT FOR THE PURPOSE OF TRANSFER OF LAND IN THE NAME OF ASSESSEE IS ALSO A SERVICE PROVIDED BY M/S. ALISHAN ESTATES PVT. LTD . FURTHER, IDENTIFYING THE BUYER AND ENSURING REALIZATION OF HIGHEST POSSIBLE VALUE FOR THE LAND ALSO NEED TECHNICAL AND PROFESSIONAL SKILL. ENSURING THAT PROFIT ON PURCHASE AND SALE TRANSACTION OF LAND WOULD NOT FALL BELOW 90% OF THE COST OF LAND N EEDS OVER ALL GOOD MANAGEMENT SKILL, COMMUNICATION SKILL, TECHNICAL AND PROFESSIONAL KNOW - HOW. THUS, IT IS CLEAR THAT THE SERVICES PROVIDED BY M/S. ALISHAN ESTATES PVT. LTD IS SPECIALIZED ONE AND ACCORDINGLY WHILE BOOKING EXPENDITURE IN ITS BOOKS WITH RES PECT TO THIS PARTY, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE. NO PAYMENT WAS MADE TO M/S. ALISHAN E STATES (P) LTD IN FINANCIAL YEAR 2005 - 06 AND A JOURNAL ENTRY WAS PASSED ON 31.03.2006 CREDITING THE ACCOUNT OF THIS PARTY BY RS.5,17,48,439/ - . SO, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE ON 31.03.2006 AT APPLICABLE RATE OF 5% (THE LEDGER OF M/S. ALISHAN ESTATES (P) LTD IN THE BOOKS OF ASSESSEE IS ENCLOSED AT ANNEXURE - 2) . BUT NO TAX DEDUCTION AT SOURCE WAS MADE. THE ASSESSEE MADE PAYMENT T O M/S. ALISHAN E STATES (P) LTD IN FINANCIAL YEAR 2006 - 07 AS PER BELOW: - 31.08.2006 R S.50,00,500/ - 01.02.2007 RS.1,00,00,000/ - 07.02.2007 RS. 50,00,000/ - 09.02.2007 RS.2,00,00,000/ - 20.02.2007 RS.1,17,47,939/ - TOTAL RS.5,17,48,439/ - BUT EVEN WHILE MAKING PAYMENT IN FINANCIAL YEAR 2006 - 07 , NO TAX DEDUCTION AT SOURCE WAS MADE. SO, VIDE THIS OFFICE LETTER NO. 1339 DATED 26.11.2008 , THE ASSESSEE WAS GIVEN AN OPPORTUNITY OF HEARING TO EXPLAIN AS TO WHY DISALLOWANCE UNDER SECTION 40(A)(IA) OF INCOME TAX ACT, 196 1 SHOULD NOT BE MADE. HOWEVER, NO SUBMISSION IS MADE TILL NOW. IT SHOWS THAT THE ASSESSEE HAD NO EXPLANATION TO FURNISH. SO, SUM OF RS. 5,17,48,439/ - IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 ITA NO . 1677 /KOL/201 0 - C - BPJ(AM) M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD 4. THE AO MADE FURTHER DISCUSSION IN HIS ORDER VIDE PARA 3. 1 TO 4 THAT THE CLAIM OF RS.5,17,48,439/ - IS NOT ALLOWABLE FOR TWO DISTINCT REASONS - FIRSTLY UNDER SECTION 40(A)(IA) OF ACT AND SECONDLY, THE TRANSACTION BEING A SHAM TRANSACTION. WITH THE DISCUSSION IN PARA 3.1 TO 3.5 FROM THE AO S ORDER M/S. ALISHAN ESTATES PVT. LTD IS A JAMAKHARCHI COMPANY THIS CONCERN IS USED BY THE ASSESSEE TO REDUCE ITS PROFIT BY RS.5,17,48,439/ - . THE CLAIM OF EXPENDITURE OF RS.5,17,48,439/ - IS NOT ALLOWABLE. ACCORDINGLY, THE AO MADE THE ADDITIONS OF R S. 5,17,48,439/ - TO THE INC OME OF THE ASSESSEE. 5. THE LD.CIT(A) HAS DELETED THE ADDITIONS BY HOLDING THAT THE AO HAS TAKEN THE DECISIONS BASED ON SUSPICION WHEREAS THE ASSESSMENT MADE U/S. 143(3) OF THE ACT SHOULD BE BASED ON LEGITIMATE MATERIAL FROM WHICH A REASONABLE INFERENCE OF INCOME HAVING BEEN EARNED DURING THE ACCOUNTING YEAR COULD BE DRAWN AND THAT THE INITIAL BURDEN LIES ON THE INCOME - TAX AUTHORITIES AND NOT ON THE ASSESSEE. IN DELETING THE ADDITIONS, HE ALSO RELIED ON DECISIONS OF VARIOUS COURTS OF LAW AVAILABLE IN HI S ORDER. THE LD.CIT(A) FURTHER HELD THAT PRINCIPLE OF NATURAL JUSTICE WAS NOT FOLLOWED BY THE AO . THE ASSESSEE HAD FILED RETURN OF INCOME ON 30 - 11 - 2006 AND THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE ONLY ON 26 - 11 - 08 JUST ONE MONTH PRIOR TO EXPIRY OF TIME LIMIT FOR THE COMPLETION OF ASSESSMENT. HE RELIED UPON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SHREERAM DURGA PRASAD(RB) VS. SETTLEMENT COMMISSION REPORTED IN 176 ITR 169 (SC) AND THE ORDER PASSED BY THE LOWER AUTHORITY IS, THEREFORE, A NULLITY SINCE IT IS MADE IN VIOLATION OF NATURAL JUSTICE . 6. AS REGARDS THE DISALLOWANCE MADE BY THE AO, HE DID NOT GIVE ANY REASON OR BASIS TO INFER OR TO MAKE ANY ADDITIONS. THERE ARE NO BASIS TO TREAT THE SAID SUM AS AN EXPENDITURE. THE PAYMENT MADE TO M/S. ALISHAN ESTATES (P) LTD BETWEEN THE PARTIES HAVING TERMS AND CONDITIONS OF THE CONTRACT FOR WHICH M/S. ALISHAN E STATES (P) LTD WAS TO BE GIVEN TO 75% SHARE OF THE PROFIT. THE ASSESSEE RECEIVED 25% OF THE PROFIT IN VIEW OF THE CONTRACT . SUC H SPECIFIED SERVICES WERE TO PROCURE PRE - SPECIFIED LAND , TO MAKE ALL NECESSARY LEGAL ARRANGEMENTS FOR SUCH LAND , TO FIND OUT SUITABLE BUYER FOR THE SAID LAND AND TO UNDERTAKE ALL THE TROUBLES FOR THE SALE OF LAND . IT WAS A GREED BETWEEN THE ASSESS EE AN D M/S M/S. ALISHAN ESTATES PVT. LTD THAT THE TOTAL PROFITS 4 ITA NO . 1677 /KOL/201 0 - C - BPJ(AM) M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD ARISING OUT FROM THE SAID JOINT VENTURE PROJECT WOULD BE DIVIDED BETWEEN M/S. ALISHAN ESTATES PVT. LTD AND THE ASSESSEE COMPANY IN THE RATIO 75:25 . THERE IS NO DEFECT POINTED OUT IN THE SAID AGREE MENT/CONTRACT BY THE AO . THEREFORE, HE WAS NOT JUSTIFIED IN TREATING THE SAID AMOUNT AS EXPENDITURE . THERE IS NO LIABILITY TO DEDUCT TAX AT SOURCE AND NO DISALLOWANCE ON THIS ACCOUNT COULD BE MADE. ACCORDINGLY, HE DELETED THE ADDITION MADE BY THE AO BY RE LYING UPON DECISIONS OF VARIOUS COURTS OF LAW. 7 . THE LD.DR HAS RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED UPON THE SUBMISSIONS MADE BEFORE THE LD.CIT(A) AND THE ORDER OF THE LD.CIT(A) IN DELETING THE ADDITION MADE BY THE AO ON THIS ISSUE. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE MAIN CONTENTION OF THE AO FOR MAKING ADDITION/DISALLOWANCE AS MENTIONED HEREINABOVE IS THAT THE TRANSACTION IS A SHAM TRANSACTION. SEC ONDLY, THE AO TREATED THE SAID AMOUNT AS AN EXPENDITURE BY HOLDING THAT THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX AT SOURCE. THEREFORE, HE MADE A DISALLOWANCE TAKING SUPPORT OF THE PROVISIONS CONTAINED IN SECTION 40(A)(IA ) OF THE I.T ACT 1961. AS REGARDS THE SHAM TRANSACTION , AT THE OUTSET , WE DO NOT SUPPORT THE ORDER OF THE AO FOR THE REASONS THAT THE TRANSACTIONS WERE MADE BY A VALID WRITTEN CONTRACT/AGREEMENT ON VARIOUS TERMS AND CONDITIONS WITH THE TWO SAID PARTIES, WHICH ARE ESSENTIAL FOR SUCH A JOIN T VENTURE PROJECT. THIS HAS NOT BEEN DENIED BY THE AO. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE SAID AGREEMENT ENTERED BETWEEN THE ASSESSEE AND ALISHAN ESTATES PVT. LTD . IN LIEU OF THE SAID AGREEMENT DTD. 10/07/2005 M/S. ALISHAN ESTATES PVT. LTD WAS TO PROCURE PRE - SPECIFIED LAND FOR PURCHASE , TO MAKE ALL THE NECESSARY LEGAL ARRANGEMENTS FOR SUCH LAND AND TO FIND OUT SUITABLE BUYER FOR THE SAID LAND AND PROFIT WAS TO BE SHARED BETWEEN THE ASSESSEE AND M/S. ALISHAN ESTATES P.LTD IN RATIO 25 : 75. THE PROFIT INCLUDES LOSS AS W ELL. HAD THERE BEEN A LOSS WHETHER THE AO WOULD HAVE TREATED THE SAID TRANSACTION AS A SHAM TRANSACTION, OBVIOUSLY THE ANSWER IS N O. SINCE JOINT VENTURE H AS EARNED A PROFIT AND SAME WAS SHARED BETWEEN THE SAID TWO PARTIES. THER EFORE , WE ARE OF THE VIEW THAT THE TRANSACTION IS COMPLETELY IN LIEU OF JOINT VENTURE AGREEMENT. THE AO IS NOT JUSTIFIED IN TREATING THE SAID PAYMENT MADE BY THE ASSESSEE TO THE JOINT VENTURE PARTNER, M/S. ALISHAN AS AN EXPENDITURE AND NO TDS IS REQUIRED TO BE DEDUCTED ON THE PROFIT SO 5 ITA NO . 1677 /KOL/201 0 - C - BPJ(AM) M/S. ENTREPRENEURS (CALCUTTA) PVT. LTD SHARED BETWEEN THE SAID TWO JOINT VENTURE PARTNERS. IN THE CIRCUMSTANCES AND FACTS OF THE PRESENT CASE THE ADDITION SO MADE BY THE AO IS WITHOUT ANY BASIS AND IS PURELY ON SURMISES AND CONJECTURES. T HE LD.CIT(A) HAS RIGHT LY DELETED THE ADDITION MADE BY THE AO. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A). WE UPHOLD THE SAME. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AS STATED ABOVE. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13/8/2015 SD/ - SD/ - 10/08/2015 ( MAHAVIR SINGH ) ( B.P.JAIN ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED : 13/8/2015 **PRADIP (SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT - ACIT, CC - II, KOLKATA 18 RABINDRA SARANI, KOL - 1. 2 RESPONDENT M/S. ZENON (INDIA) PVT. LTD. 32A, C.R AVENUE, KOL - 12. 3 . THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D . R 6. GUARD FILE TRUE COPY, BY ORDER ASSTT. REGISTRAR