Penthea Builders & Developers Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1951/DEL/2011

• Counselvise Citation: 195120114 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR CHOPRA
• Assessee Lawyers: R K KAPOOR
• Keywords: Capital asset; Cost of acquisition
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SMT. DIVA SINGH, J .M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 1951/DEL/2011 ASSESSMENT YEAR : 2007-08 PENTHEA BUILDERS & DEVELOPES PVT. LTD. VS. INCOME TAX OFFICER, 1-E, NAAZ CINEMA COMPLEX, WARD 14(2), JHANDEWALAN EXTENSION NEW DELHI. NEW DELHI 110 055 PAN AAECP3346D (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI PRADEEP DINODIA & SHRI R.K. KAPOOR, CA DEPARTMENT BY:- SH. MANOJ KUMAR CHOPRA, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF LD.CIT(APPEALS)-XVII, NEW DELHI DT. 24.2.2011 PERTA INING TO THE ASSESSMENT YEARS 2007-08 ON THE FOLLOWING GROUNDS : 1. THAT THE IMPUGNED ORDER DATED 24.2.2011 PASSED BY T HE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)XVII, NEW DELHI IS BAD IN LAW AND WRONG ON FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XVII HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER TREAT ING THE AMONT PAYABLE TO THE CONSOLIDATOR AMOUNTING TO RS. 93,39, 946/- AS NON GENUINE EXPENDITURE. 2.1THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME0TAX (APPEALS) XVII HAS ERRED IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN MA KING DISALLOWANCE U/S 40(A)(IA) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 93,39,946/- PAID BY THE ASSESEE TOS THE CONSOLIDATOR FOR TRANSF ER OF RIGHTS. ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 2 OF 13 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XVII HAS ERRED IN HOLDING THAT THE CONSOLIDATOR WAS WORKING AS AN AGENT OF THE ASS ESEE AND HENCE THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON AMOUNT PAID TO THE CONSOLIDATOR U/S 194C OR 194H OF THE INCOME-TAX ACT , 1961. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XVII HAS ERRED IN LAW IN NOT APPRECIATING THAT THE DISALOWNCE OF SAID SUM OF RS. 93,39,946/- WHICH IS INCLUDED IN PURCHASES DURING THE YEAR HAS NO IMPACT ON APPELLANTS PROFIT LIABLE TO TAX AS THE ENTIRE PURC HASES FORM PART OF CLOSING STOCK OF THE APPELLANT AT THE YEAR END. 3.1THAT THE ORDER OF LEARNED CIT(APPEALS) IS ERRONE OUS AND SELF CONTRADICTORY. THE LEARNED CIT(APPEALS) HAS ERRED I N CONFIRMING THE ADDITION AFTER HOLDING THAT CLOSING STOCK ALSO NEED S TO BE REDUCED. THE LEARNED CIT(APPEALS) OUGHT TO HAVE HELD THAT THE TR ANSACTION OF RS. 93,39,946/- DOES NOT RESULT INTO ANY TAXABLE INCOME AS SAME IS NEITHER INCLUDIBLE IN PURCHASES OR CLOSING STOCK. 2. BRIEF FACTS : BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT COMP ANY IS IN THE BUSINESS OF ACQUIRING AND DEVELOPING LAND. IT F ILED ITS RETURN OF INCOME DECLARING A LOSS OF RS. 5,591/. THE AO NOTICED FRO M THE PERUSAL OF THE DETAILS FILED IN RESPECT OF LAND ACQUIRED THAT THE ASSESSEE COMPANY HAS BOOKED AN AMOUNT OF RS. 93,39,946/- TO THE PURCHASE S OVER AND ABOVE TO THE AMOUNT PAID TO THE LAND OWNERS AND STAMP DUTY. HE FURTHER OBSERVED THAT THE ASSESSEE COMPANY HAS PAID AN AMOUNT OF RS. 30,87,97,500/- TO FIVE LAND OWNERS AND STAMP DUTY OF RS. 1,85,27,910/ -. IN ADDITION TO THESE TWO AMOUNTS THE ASSESSEE COMPANY ALSO CLAIMED A SUM OF RS. 93,39,946/- AS AMOUNT PAYABLE TO THE CONSOLIDATOR. THE AO ASKED THE ASSESSEE TO EXPLAIN THE AMOUNT OF RS. 93,39,946/- CLAIMED AS PA YABLE TO CONSOLIDATOR. AFTER CONSIDERING THE REPLY OF THE ASSESSEE COMPANY , THE AO CAME TO THE CONCLUSION THAT THE PAYMENT WAS NOT GENUINE AND THE REFORE HE DISALLOWED THE SAME. 3. AGGRIEVED THE ASSESEE CARRIED THE MATTER IN AP PEAL. 4. THE FIRST APPELLATE AUTHORITY HELD AS FOLLOWS : - ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 3 OF 13 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MA DE BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER PASSED BY THE AO. AS PER THE FACTS OF THIS CASE, THE APPELLANT COMPANY WAS INCORPORATED O N 30.11.2006 AND AS SUCH THIS IS EFFECTIVELY THE FIRST YEAR OF ITS O PERATION. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAS PURCHASED LA ND MEASURING 12.83 ACRES IN DISTRICT GURGAON. IT IS OBSERVED BY THE AO IN THE ASSESSMENT ORDER THAT THE APPELLANT HAS SHOWN THE PURCHASE PRI CE OF THE ABOVE LAND AT RS. 33,66,65,365/- WHICH IS DEBITED TO ITS P ?& L A/C AS AGAINST THIS, THE COST OF THE ABOVE LAND PAID TO THE LAND OWNERS AS PER SALE DEEDS IS RS. 30,87,97,500/- AND THE STAMP DUTY IS RS. 1,85,2 7,910/-. THE TOTAL OF THE ABOVE TWO AMOUNTS COMES TO RS. 32,73,25,410/-. ON BEING QUESTIONED BY THE AO REGARDING THE DIFFERENCE AMOUT NOF RS. 93,39,946/-, IT WAS CONTENDED BY THE APPELLANT THAT THE SAID LAN D HAS BEEN PURCHASED THROUGH THE LAND CONSOLIDATOR M/S. VIKRAM ELECTRIC EQUIPMENT (P) LTD. AND THE EXCESS AMOUNT WAS PAID TO M/S. VIK RAM ELECTRIC BEING CONSOLIDATOR TOWARDS TRANSFER OF ITS RIGHTS IN THE LAND. IT WAS ARGUED THAT THE SAME WAS DONE AS PER THE MEMORANDUM OF UNDERSTA NDING BETWEEN THE ASSESEE AND M/S. VIKRAM ELECTRIC FOR PURCHASES OF 27 ACRES OF LAND FOR WHICH M/S. VIKRAM ELECTRIC WAS TO ACT AS CONSOL IDATOR FOR IDENTIFYING THE LAND, APPROACHING THE LAND OWNERS AND NEGOTIATI NG WITH THEM AND CARRYING OUT DUE DILIGENCY ETC. IT WAS ARGUED THAT THE LAND MEASURING 12.83 ACRES PURCHASED DURING THIS YEAR FORMS PART O F THE TOTAL 27 ACRES OF LAND WHICH WILL BE PURCHASED BY THE ASSESEE THRO UGH M/S. VIKRAM ELECTRIC CO. (P) LTD. AS PER THE MOU. IT WAS OBSERV ED BY THE AO THAT THE ABOVE AMOUNT WAS NOT APPEARING SEPARATELY IN THE P & L A/C AS EXPENDITURE BUT WAS CLUBBED WITH THE PURCHASE PRICE OF LAND AND THAT THE SALE DEED WITH THE LAND OWNERS DID NOT INDICATE THAT THE CONSOLIDATOR WAS INVOLVED IN THE ARRANGING THE PURCHASE OF LAND. THE AO HAS ALSO OBSERVED THAT M/S. VIKRAM ELECTRIC CO. (P) LTD. HAS NOT SHOWN INCOME OF THE ABOVE AMOUNT IN ITS PROFIT AND LOSS A/C. THE AO HAS, ACCORDINGLY, HELD THIS PAYMENT TO BE NON-GENUINE EXPENDITURE. WI THOUT PREJUDICE TO THE ABOVE ARGUMENT, IT IS OBSERVED BY THE AO THAT T HE CONSOLIDATION CHARGES RECEIVED BY M/S. VIKRAM ELECTRIC CO. (P) LT D. IS IN THE NATURE OF ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 4 OF 13 BROKERAGE OR SERVICE CHARGES SUBJECT TO TDS U/S 194 H OF THE ACT. ALTERNATIVELY, SINCE THE PAYMENT WAS MADE UNDER THE MOU, IT IS IN THE NATURE OF PAYMENT TO CONTRACTOR WHICH IS SUBJECT TO TDS U/S 194C OF THE ACT. SINCE NO TDS HAS BEEN DEDUCTED IN RESPECT OF T HE ABOVE PAYMENT, THE AO HAS HELD THAT THE ABOVE SUM IS DISALLOWABLE U/S 40(A)((IA) OF THE ACT. THE AO HAS, ACCORDINGLY, ADDED THE ABOVE AMOUN T OF RS. 93,39,946/- TO THE APPELLANTS INCOME FOR THE YEAR. 2.4 DURING THE APPELLATE PROCEEDINGS, IT IS ARGUED BY THE LD. AR THAT THE LAND HAS BEEN PURCHASED THROUGH M/S VIKRAM ELECTRIC CO. (P) LTD. AS PER MOU DATED 13.12.2006. IT WAS ARGUED THAT OUT OF THE COST OF LAND OF RS. 30,87,97,500/- AS PER DALE DEEDS, PAYMENT OF RS. 18 ,02,97,500/- WAS PAID THROUGH THE CONSOLIDATOR TO THE LAND OWNERS AN D THE REMAINING AMOUNT OF RS.12,75,00,000/- WAS PAID TO THE LAND OW NERS DIRECTLY BY THE APPELLANT COMPANY THROUGH ITS BANK ACCOUNT. IT WAS ARGUED THAT THE ALLEGED EXCESS AMOUNT OF RS. 93,39,946/- IS ON ACCO UNT OF TRANSFER OF RIGHT BY THE CONSOLIDATOR IN THE SAID LAND PURCHASE D BY THE APPELLANT AS PER THE TERMS OF THE MOU. IT IS ARGUED THAT THE ABO VE CLAIM IS GENUINE EXPENDITURE IN CONNECTION WITH THE PURCHASE OF LAND . IT WAS ALSO ARGUED THAT THE AMOUNT OF RS. 93,39,946/- WHICH WAS CREDIT ED AS DUE TO M/S VIKRAM ELECTRIC EQUIPMENT (P) LTD. IS NOT IN THE NA TURE OF REMUNERATION AS THE QUESTION OF PAYMENT OF REMUNERATION WILL ARISE ONLY AFTER THE CONSOLIDATOR PROCURED THE ENTIRE 27 ACRES OF LAND A S PER THE TERMS OF THE MOU. IT WAS SUBMITTED THAT ACTUALLY NO PAYMENT WAS MADE DURING THE YEAR TO VIKRAM ELECTRIC EQUIPMENT (P) LTD. AND A TO TAL AMOUNT OF RS. 93,39,946/- WAS SHOWN AS PAYABLE TO VIKRAM ELECTRIC EQUIPMENT (P) LTD. BUT NO ACTUAL PAYMENT WAS MADE TO M/S. VIKRAM ELECT RIC EQUIPMENT (P) LTD. DURING THE YEAR. ACCORDINGLY, IT WAS ARGUED TH AT THE IMPUGNED PAYMENT IS NOT SUBJECT TO TDS U/S 194H/194C OF THE ACT. IT IS ALSO ARGUED THAT THE PAYMENT MADE TO THE CONSOLIDATOR IS ON A PRINCIPAL TO PRINCIPAL BASIS. 2.4.1. I FURTHER FIND THAT ALTHOUGH THE APPELLANT HAS CLAIMED THE ABOVE AMOUNT OF RS. 93,39,946/- CREDITED TO M/S. VIKRAM E LECTRIC CO. (P) LTD. ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 5 OF 13 AS PART OF THE PURCHASE COST OF LAND, IT HAS FAILED TO ESTABLISH AS TO HOW THE SAID AMOUNT CAN PARTAKE THE CHARACTER OF PURCHA SE PRICE OF LAND OF 12.83 ACRES. THE PURCHASE PRICE OF LAND WOULD INCLU DE THE COST OF LAND AS PER THE SALE DEEDS AND THE STAMP DUTY PAID THEREON WHICH AMOUNTS TO RS. 30,87,97,500/- AND RS. 1,85,27,910/- RESPECTIVE LY. THERE IS NO MENTION OF THE ABOVE AMOUNT OF RS. 93,39,946/- OR O F ANY INVOLVEMENT OF M/S. VIKRAM ELECTRIC CO. (P) LTD. IN THE SALE DEEDS . THE SALE DEEDS ARE MADE DIRECTLY BETWEEN THE LAND OWNERS AND THE APPE LLANT COMPANY. THE APPELLANT HAS ALSO FAILED TO SUBSTANTIATE AS TO WHA T WORK WAS ACTUALLY DONE BY M/S. VIKRAM ELECTRIC CO. (P) LTD. IN RESPEC T OF THE 12.83 ACRES OF LAND PURCHASED BY THE APPELLANT. THE APPELLANTS MA IN PLEA IS THAT IT IS AN ON ACCOUNT CREDIT FOR PURCHASE OF TOTAL 27 ACRES OF LAND. IN THAT CASE, THE AMOUNT OF RS. 93,39,946/- WOULD BE IN THE NATUR E OF ADVANCE CREDIT FOR PURCHASE OF THE REMAINING AREA AND IT CANNOT BE MADE PART OF THE COST OF 12.83 ACRES OF LAND ALREADY PURCHASED BY THE APP ELLANT. THE APPELLANTS SUBSEQUENT PLEA BEFORE THE AO IS THAT T HE PAYMENT IS FOR TRANSFER OF RIGHTS OF M/S. VIKRAM ELECTRIC CO. (P) LTD. IN THE LAND BUT THIS PLEA IS ALSO COMPLETELY UNSUBSTANTIATED. FURTHER, M /S. VIKRAM ELECTRIC CO. (P) LTD. HAS ALSO NOT SHOWN ANY INCOME IN RELAT ION TO THE ABOVE LAND IN ITS P & L A/C. THE APPELLANT HAS ALSO CLAIMED TH AT THE ABOVE AMOUNT DOES NOT REPRESENT REMUNERATION TO M/S. VIKRAM ELEC TRIC CO. (P) LTD. AND IT IS CLAIMED THAT THE REMUNERATION WILL BE DECIDED MUTUALLY AFTER CONCLUSION OF THE DEAL FOR ENTIRE 27 ACRES AS PER M OU. CONSIDERING THE ABOVE, THE APPELLANTS CLAIM OF INCLUDING THE ABOVE AMOUNT OF RS. 93,39,946/- AS PART OF THE COST OF LAND (DEBITED TO P & L A/C) IS REJECTED. THEREFORE, THE VALUE OF CLOSING STOCK OF THE ABOVE 12.83 ACRES SHOWN BY THE APPELLANT AT RS. 33,66,65,356/- WILL ALSO BE RE DUCED BY THE ABOVE AMOUNT OF RS. 93,39,946/- AND THE BALANCE OF RS. 32 ,73,25,410/- ONLY WILL BE ALLOWED TO BE CARRIED FORWARD AS VALUE OF C LOSING STOCK OF LAND TO THE NEXT YEAR. 2.4.2. AS REGARDS THE AOS ALTERNATIVE OBSERVATIO N REGARDING NON- DEDUCTION OF TDS U/S 194C/194H, IT WAS ARGUED BY TH E LD. AR THAT THE ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 6 OF 13 PAYMENT IS NOT SUBJECT TO TDS AS IT IS BETWEEN PRIN CIPAL AND PRINCIPAL. IT WAS ALSO ARGUED THAT THE AO IS CONFUSED AS TO WHICH SECTION OF TDS (194C OR 194H) WOULD APPLY, IF AT ALL. IT WAS, ACCO RDINGLY, ARGUED THAT THE ABOVE DISALLOWANCE MADE ON THE BASIS OF GUESS W ORK NEEDS TO BE DELETED. ALTERNATIVELY, IT WAS ARGUED THAT THE APPE LLANT HAS NOT CLAIMED THE ABOVE AMOUNT AS DEDUCTION AND AS SUCH NO DISALL OWANCE U/S 40(A)(IA) CAN BE MADE. 2.4.3 ON CAREFUL EXAMINATION OF THE ABOVE MATTER, I AM OF THE CONSIDERED VIEW THAT SINCE THE EXPENSES HAVE BEEN DISALLOWED B Y THE AO AS NON GENUINE EXPENSES AND WHICH HAS ALSO BEEN CONFIRMED BY ME IN PARA 2.4.1 ABOVE, THE QUESTION OF APPLICABILITY OF SECTI ON 40(A)(IA) BECOME ACADEMIC. IF IT IS PRESUMED THAT THE ABOVE EXPENSE INCURRED WAS GENUINE AND FOR THE PURPOSE OF BUSINESS AS CLAIMED BY THE A PPELLANT, THEN THE SAID EXPENSE WILL BE AUTOMATICALLY HIT BY PROVISION S OF SECTION 40(A)(IA) BECAUSE IN THAT CASE IT HAS TO BE HELD THAT M/S. VI KRAM ELECTRIC CO. (P) LTD. HAS BEEN ENGAGED BY THE APPELLANT COMPANY TO R ENDER ITS SERVICES AS A CONSOLIDATOR UNDER THE MOU. THE LAND IS PURCHA SED BY THE APPELLANT NOT FROM M/S. VIKRAM ELECTRIC CO.(P) LTD. BUT DIREC TLY FROM THE LAND OWNERS AS PER THE SALE DEEDS. THE LD. AR HAS ARGUED THAT THE EXCESS AMOUNT OF RS. 93,39,946/- PAID BY IT TO M/S. VIKRAM ELECTRIC CO. (P) LTD. IS NOT IN THE NATURE OF REMUNERATION AS REMUNERATIO N WILL BE PAID AS MAY BE MUTUALLY AGREED AFTER PROCURING THE ENTIRE 27 AC RES AS PER MOU. HOWEVER, THIS ARGUMENT BY THE LD. AR IS NOT VALID. SINCE THE LAND HAS BEEN PURCHASED BY APPELLANT DIRECTLY FROM THE LAND OWNERS AS PER SALE DEED AT RS. 30,87,97,500/- AND STAMP DUTY OF RS. 1, 85,27,910/- HAS ALSO BEEN PAID ON THE ABOVE AMOUNT OF SALE CONSIDER ATION, THE ABOVE EXCESS AMOUNT OF RS. 93,39,946/- CANNOT BE PART OF PURCHASE PRICE OF THE LAND. THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN FO R WHICH THE ABOVE EXCESS AMOUNT WAS PAID TO M/S. VIKRAM ELECTRIC CO. (P) LTD. IF NOT AS REMUNERATION FOR THE SERVICES RENDERED BY IT AS CON SOLIDATOR. THE LD. ARS ARGUMENT THAT THE REMUNERATION WILL BE DECIDED ON COMPLETION OF ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 7 OF 13 PROCUREMENT OF THE ENTIRE 27 ACRES IS ALSO TOO INDE FINITE AND VAGUE SINCE THE CONSOLIDATOR CANNOT BE POSSIBLY WAIT INDEFINITE LY FOR SOME UNCERTAIN AMOUNT OF REMUNERATION TO BE DECIDED AND PAID ON C ONCLUSION OF THE PROBABLE EVENT OF PROCUREMENT OF THE ENTIRE 27 ACRE S. UNDER THE FACTS AND CIRCUMSTANCES, THE EXCESS PAYMENT OF RS. 93,39,946/ - MADE TO M/S. VIKRAM ELECTRIC EQUIPMENT (P) LTD. WOULD BE IN THE NATURE OF BROKERAGE OR COMMISSION OR FEES FOR RENDERING SERVICES AS A CONS OLIDATOR. 2.4.4. IN VIEW OF THE ABOVE, SAID PAYMENT OF RS. 93,39,946/- WOULD CONSTITUTES BROKERAGE OR COMMISSION OR FEES FOR PR OFESSIONAL SERVICES WHICH IS SUBJECT TO DEDUCTION OF TDS U/S 194H OF TH E ACT. SINCE NO TDS HAS BEEN MADE ON THE ABOVE AMOUNT, THE SAID AMOUNT IS NOT DEDUCTIBLE AS EXPENDITURE AS PER THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. 2.4.5. AS REGARDS THE LD. ARS CONTENTION THAT THE AMOUNT HAS NOT BEEN CLAIMED AS DEDUCTION AND HENCE NO DISALLOWANCE U/S 40(A)(IA) CAN BE MADE, I FIND THAT THE SAME IS NOT VALID AS PER THE FACTS OF THIS CASE. I FIND THAT THE SAID AMOUNT HAS BEEN INCLUDED IN THE COST OF PURCHASE OF LAND WHICH IS DEBITED TO THE P & L A/C. AS SUCH, THE AMO UNT HAS INDEED BEEN CLAIMED AS DEDUCTION IN THE P & L A/C OF THE APPELL ANT, THOUGH WRONGLY CLUBBED WITH COST OF LAND. CONSIDERING THE ABOVE, I AM OF THE VIEW THAT THE SAID AMOUNT NEEDS TO BE ADDED BACK TO THE APPEL LANTS INCOME FOR THE YEAR. IN VIEW OF THE ABOVE DISCUSSION, THE IMPU GNED ADDITION OF RS. 93,39,946/- IS UPHELD U/S 40(A)(IA) OF THE ACT. 2.5. THE DISALLOWANCE AND ADDITION OF RS. 93,39,9 46/-IS THUS CONFIRMED ON BOTH THE COUNTS AS DISCUSSED IN PARA 2.4.4 & 2. 4.5. THE CARRY FORWARD OF THE VALUE OF CLOSING STOCK OF LAND IS AL SO REDUCED BY RS. 93,39,946/- AS DISCUSSED IN PARA 2.4.1. THIS GROUND OF APPEAL IS REJECTED. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE US. ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 8 OF 13 6. WE HAVE HEARD SHRI PRADEEP DINODIA LD. COU NSEL FOR THE ASSESSEE AND SHRI MANOJ KUMAR CHOPRA LD. SR. DR ON BEHALF OF THE REVENUE. 7. SHRI PRADEEP DINODIA SUBMITS THAT ON IDENTICAL SET OF FACTS, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAI NST THE REVENUE BY THE D BENCH OF THE ITAT IN ITA NO. 2361/DEL/2011 AND ITA NO. 1953/DEL/2011 FOR THE ASSESSMENT YEAR 2007-08 IN TH E CASE OF M/S. FINIAN ESTATE DEVELOPERS (P.) LTD. ORDER DATED 5 TH OCTOBER, 2011. WE FURTHER SUBMIT THAT THE H BENCH OF THE TRIBUNAL IN THE CASE OF ZEBINA REAL ESTATE PVT. LTD. VS. ITO IN ITA NO. 1429/D/2011 AND 1430/D/2011 ORDE R DATED 12.4.2013 FOLLOWED THE JUDGMENT OF TRIBUNAL IN THE CASE OF FI NIAN ESTATES DEVELOPERS (P) LTD. 142 TTJ 545 (DEL) AND ALLOWED THE APPEAL O F THE ASSESSEE. 8. LD. DR ON THE OTHER HAND WHILE AGREEING WITH T HE ARGUMENT THAT THE TRIBUNAL ORDERS ON THIS ISSUE ON THE SAME FACTS ARE IN FAVOUR OF THE ASSESEE REFERRED TO THE PAPER BOOK FILED BY THE ASSESSEE A ND CONTENDED THAT A) IF THE ASSESSEE IS THE PRINCIPAL THEN THERE IS NO REASON A S TO WHY IT SHOULD INCUR HUGE LOSSES B) NO COMMISSION IS PAID C) NO PAYMENT WAS MADE FOR TRANSFERRING RIGHTS WHICH WERE VESTED WITH THE ASSE SSEE D) A PERUSAL OF THE AGREEMENT WITH M/S. VIKRAM ELECTRIC EQUIPMENT PVT. LTD. DEMONSTRATE THAT IT IS A COMMISSION AGENT. LD. DR RELIED ON THE ORDE R OF THE AO AS WELL AS THE LD. CIT(A). 9. AFTER HEARING THE RIVAL CONTENTIONS AS ADMITTED BY BOTH PARTIES THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER OF THE TRIBUNAL IN THE CASE OF FINIAN ESTATES DEVELOPERS (P) LTD. WHER EIN IT IS HELD AS FOLLOWS :- 23. WE HAVE HEARD THE PARTIES AND HAVE PERUSED T HE MATERIAL ON RECORD. THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN PURCHASES AND CLOSING STOCK OF LAND AT RS. 60,23,16,022/-. THIS I NCLUDED A SUM OF RS. 4,20,15,681/- PAID BY THE ASSESSEE TO M/S. VIKRAM E LECTRIC EQUIPMENTS P. LTD. M/S. VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD BEEN APPOINTED BY THE ASSESSEE AS A CONSOLIDATOR TO ACQUIRE AND CONSOLIDA TE THE LAND HOLDING. IT WAS OBSERVED BY THE AO THAT AS PER THE MOU WITH VIK RAM ELECTRIC EQUIPMENT P. LTD. PAYMENTS WERE TO ACCRUE TO VIKRAM ELECTRIC EQUIPMENT ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 9 OF 13 P. LTD. ONLY ON ACQUISITION OF A MINIMUM OF 27 ACRE S OF LAND. OBSERVING THAT THE CONSOLIDATOR, I.E. VIKRAM ELECTRIC EQUIPME NT P. LTD. HAD NOT CONSOLIDATED THE REQUISITE MINIMUM 27 ACRES OF LAND DURING THE YEAR, THE AO DISALLOWED THE AMOUNT OUT OF PURCHASES. ACCORDIN GLY, HE ALSO REDUCED THE CLOSING STOCK BY A SIMILAR AMOUNT. THE CLOSING STOCK WAS THUS DETERMINED AT RS. 54,03,00,341/-. 24. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT THE AMOUNT INVOLVED WAS NOT OF RS. 4,20,15,641/-, SINCE VIKRAM ELECTRIC EQUIPMENT P LTD. HAD BEEN PAID ONLY RS.1,24,33,376/-. IT WAS ON THIS CONTENTION OF THE ASSESSEE THAT THE LD. CIT(A) DIRECTED THE AO TO VERIFY THE ACTUAL AMOUNT INVOLVED. 25. IT HAS BEEN MAINTAINED BY THE ASSESSEE ALL T HROUGH THAT THE PAYMENT TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS ON ACCOUNT OF TRANSFER OF CERTAIN RIGHTS OF VIKRAM ELECTRIC EQUIPMENT P. L TD. IN THE LANDS TRANSFERRED TO THE ASSESSEE AND WAS NOT TOWARDS ANY SERVICES RENDERED. AS A CONSOLIDATOR, VIKRAM ELECTRIC EQUIPMENT P. LTD . WAS TO CONTACT THE LOCAL FARMERS IN AND AROUND GURGAON, WHO WERE WILLI NG TO SELL THEIR LAND. VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS MAKING PAYMEN TS FROM ITS ACCOUNT TO THE FARMERS AND THERETO HAVE CERTAIN RIG HTS IN THE LAND. ON THE ULTIMATE TRANSFER OF LAND TO THE ASSESSEE THROUGH V IKRAM ELECTRIC EQUIPMENT P. LTD. THE FINAL PAYMENT WAS TO BE MADE TO THE FARMERS. TOWARDS THE RIGHT OF VIKRAM ELECTRIC EQUIPMENT P. L TD. 2% OF THE COST OF LAND (IN SOME CASES, EVEN A HIGHER AMOUNT) WAS TO B E PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD. AS MUTUALLY AGREED. THIS WAS THE MUTUALLY AGREED PRICE. VIKRAM ELECTRIC EQUIPMENT P LTD. WORK ED FOR LAND ACQUISITION AND AFTER SCRUTINY OF THE CONCERNED DOC UMENTS OF THE LAND, VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD SUGGEST THE APPROPRIATE LAND FOR PURCHASE BY THE ASSESSEE. VIKRAM ELECTRIC EQUIPMENT P. LTD. THUS ACTED WITH THE FARMERS ON ITS OWN ACCOUNT RATHER THAN FOR AND ON BEHALF OF THE ASSESSEE, ON PRINCIPLE TO PRINCIPLE BASIS, WITH THE FARMERS ON THE ONE HAND AND THE ASSESSEE ON THE OTHER. THE ASSESSEE CO NTENDS THAT THIS BEING SO, THE PROVISIONS OF NEITHER SECTION 1994C N OR SECTION 194 H GET ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 10 OF 13 ATTRACTED TO THE PAYMENT MADE BY THE ASSESSEE TO VI KRAM ELECTRIC EQUIPMENT P. LTD. THE PAYMENT ALONG WITH PAYMENT M ADE TO THE FARMERS DIRECTLY REPRESENTED THE PURCHASE OF THE COST OF LA ND AND HAD BEEN CORRECTLY TREATED AS SUCH IN THE ASSESSEES BOOKS O F ACCOUNT. IT HAS BEEN CONTENDED THAT ALTERNATIVELY, IN ANY CASE, THE PAYM ENT MADE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. HAS NOT AFFECTED THE TAX ABLE PROFITS OF THE ASSESSEE DURING THE YEAR. THE TOTAL PURCHASES WERE LYING AS CLOSING STOCK, AS OBSERVED BY THE TAXING AUTHORITIES ALSO A ND THE EFFECT OF ADJUSTMENT WITH REGARD TO THE AMOUNT PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD ARISE ONLY ON AND IN THE INSTANCES OF SALE OF LAND BY THE ASSESSEE. IT IS AN SUCH THAT IT HAS BEEN CLAIMED TH AT NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CALLED FOR MUCH LESS ANY CO NSEQUENTIAL ACTION U/S 201 OF THE ACT. IT HAS BEEN CONTENDED THAT VIKRAM E LECTRIC EQUIPMENT P. LTD. HAD AN IMPORTANT ROLE TO PLAY AS A CONSOLIDATO R, SINCE THE ASSESSEE REQUIRED CONTIGUOUS LAND HOLDINGS IN ORDER TO DEVEL OP A COLONY. IN CASE ANY LAND WHICH WAS AGREED TO BE ACQUIRED BY VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS NOT FOUND TO BE SUITABLE, IT WAS VIKRAM ELECTRIC EQUIPMENT P. LTD. WHICH WOULD HAVE TO BEAR THE CONSEQUENCES, IND ICATING THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS NOT ACTING AS AN AGE NT ON BEHALF OF THE ASSESSEE, BUT WAS WORKING ON A PRINCIPLE TO PRINCIP LE BASIS, INDEPENDENTLY. 26. THE STAND OF THE DEPARTMENT, ON THE OTHER HAN D, HAS BEEN THAT MOU SIGNED BY THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMEN T P. LTD. LAYS DOWN THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. MAKES IT CLE AR THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS ACTING AS AN AGENT OF THE ASS ESSEE, RENDERING SERVICES, FOR WHICH, THE PROVISIONS OF SECTION 194 H OF THE ACT ARE APPLICABLE AND IT IS CORRECTLY APPLIED BY THE LD. C IT(A). 27. IN THIS REGARD, IT IS SEEN THAT CLAUSE 3.2 OF THE MOU BETWEEN THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. MAKE S IT CLEAR THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. OR ITS AGENT AGRE ED TO ASSIGN THEIR RIGHTS TO PURCHASE THE LAND IN FAVOUR OF THE ASSESS EE. IT WOULD BE APPROPRIATE TO REPRODUCE HERE, THE SAID CLAUSE 3.2 :- ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 11 OF 13 3.2. IN CONSIDERATION OF THE CONSOLIDATOR OR ITS AGENT/NOMINEE ASSIGNING ITS RIGHTS TO PURCHASE THE LAND IN FAVOUR OF THE BUYER COMPANY AND CAUSING THE LAND OWNERS TO EXECUTE THE SALE DEEDS DIRECTLY IN FAVOUR OF THE BUYER COMPANY, THE BUYER COMPANY SHALL PAY THE CONSOLIDATOR SUCH SUM AS MAY BE MUTUALLY AGREED. HOWEVER, IT IS SPECIFICALLY AGREED BY THE CONSOLIDATOR THAT NO SUM SHALL ACCRUE TO IT ON THIS ACCOUNT TILL IT PROCURES 27 ACRES OF LAND FOR THE BUYER COMPANY (UN LESS THE BUYER COMPANY DECIDES TO PROCURE LESS THAN 27 ACRES THROUGH THE CONSOLIDATOR) AND ALL THE ISSUES RELATING TO PO SSESSION AND MUTATION OF SUCH LAND ARE SETTLED TO THE SATISFACTI ON OF THE BUYER COMPANY. 28. THE ABOVE CLAUSE ALSO MAKES IT EVIDENT THAT UNLESS THE ASSESSEE DECIDED TO PROCURE LESS THAN 27 ACRES OF LAND THROU GH VIKRAM ELECTRIC EQUIPMENT P. LTD. VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS TO PROCURE 27 ACRES OF LAND FOR THE ASSESSEE, FAILING WHICH, NO P AYMENT WAS TOBE MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD . 29. THIS CLEARLY SHOWS THAT VIKRAM ELECTRIC EQUIP MENT P. LTD. WAS TRANSACTING ON A PRINCIPLE TO PRINCIPLE BASIS AND I T CAN NOT BE SAID THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO VIKRAM ELEC TRIC EQUIPMENT P. LTD. FOR RENDERING OF ANY SERVICE. THE PROVISIONS O F SECTION 194 H OF THE ACT ARE THEREFORE, NOT AT ALL APPLICABLE. 30. MOREOVER, THE AMOUNT PAID TO VIKRAM ELECTRIC E QUIPMENT P. LTD. WAS DULY REFLECTED BY THE ASSESSEE IN THE PURCHASES CLO SING STOCK. NO SALES HAD BEEN MADE DURING THE YEAR UNDER CONSIDERATION. IT HAS NOT BEEN SHOWN TO BE OTHERWISE. IN SUCH A SCENARIO, IN OUR C ONSIDERED OPINION, NO DISALLOWANCE IS CALLED FOR. 31. FURTHER STILL, THE CHART AT PAGE 16 OF THE AS SESSEES PAPER BOOK SHOWS THAT ALMOST 2% OF THE SALE VALUE WAS BEING PA ID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. AS CONSIDERATI ON FOR TRANSFERRING VIKRAM ELECTRIC EQUIPMENT P. LTD.S RIGHTS. THIS WA S IN TERMS OF THE ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 12 OF 13 AFORE-MENTIONED CLAUSE 3.2. OF THE MOU BETWEEN THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. IT HAS NOT BEEN S HOWN IF SUCH PAYMENT IS NOT A FAIR COMPENSATION PAID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WHICH, ANYHOW, IS NOT AN IMPEDIME NT IN HOLDING, AS ABOVE, THAT THE TRANSACTIONS BETWEEN THE ASSESSEE A ND VIKRAM ELECTRIC EQUIPMENT P. LTD. ARE ON A PRINCIPLE TO PRINCIPLE B ASIS, NOT ATTRACTING THE PROVISIONS OF SECTION 194 H OF THE ACT. 32. PERTINENTLY, NO ADDITION HAVING BEEN MADE FOR THE YEAR BY THE AO, THE ALTERNATE CONTENTION OF THE ASSESSEE TO THE EFF ECT THAT NO ADDITION CAN BE MADE DURING THE YEAR, STANDS ACCEPTED BY BOTH TH E AUTHORITIES BELOW. 33. THE PROVISIONS OF SECTION 40(A) (IA) OF THE AC T IN ANY CASE DO NOT APPLY, THE ASSESSEE HAVING NOT CLAIMED ANY DEDUCTIO N FOR ANY EXPENSES ON ACCOUNT OF PAYMENT TO VIKRAM ELECTRIC EQUIPMENT P. LTD. EITHER IN ITS PROFIT AND LOSS ACCOUNT OR IN THE COMPUTATION OF TA XABLE INCOME FILED. IT WAS ONLY THAT THE AO RECORDED A LOSS OF RS. 19,700/ - . THIS OBVIOUSLY, DID NOT INCLUDE ANY ADDITION OF EITHER RS. 4.02 CRO RES OR RS. 1.24 CRORES. 34. IN VIEW OF THE ABOVE DISCUSSIONS, THE GRIEVAN CE OF THE ASSESSEE IS FOUND TOBE CORRECT AND IS ACCEPTED AS SUCH. 12. CONSISTENT WITH THE VIEW TAKEN THEREIN, AS IT IS UNDISPUTED THAT THE FACTS ARE IDENTICAL, WE ALLOW THIS APPEAL OF THE AS SESSEE. 13. IN THE RESULT APPEAL OF THE ASSESEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 7 TH OCTOBER, 2014. SD/- SD/- (DIVA SINGH) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 17 TH OCTOBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: ITA NO.1951/DEL/2011 AYS 2007-08 PENTHEA BUILDERS & DEVELOPERS PVT. LTD. VS. ITO PAGE 13 OF 13 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR