ITO, New Delhi V. M/s Invecon Pvt. Ltd., Delhi

ITA 3562/DEL/2013

• Counselvise Citation: 356220114 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YATENDRA SINGH
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SMT. DIVA SINGH: JUDICIAL MEMBER AND SHRI O.P. KANT : ACCOUNTANT MEMBER ITA N O. 3 5 62 /DEL/201 3 ASSTT. YRS: 200 7 - 08 INCOME TAX OFFICER, VS. M/S INVECON PVT. LTD., WARD 11(4), NEW DELHI. 56, DARYA GANJ, NEW DELHI - 110002. PAN: A ABCI 0423 R ( APPELLANT ) (RESPONDENT) APPELLANT BY : SHRI YATENDRA SINGH SR. DR RESPONDENT BY : SHRI R.S. SINGHVI CA DATE OF HEARING : 17/11/2015. DATE OF ORDER : 20 /11/2015. O R D E R PER O.P. KANT, A.M. : THIS APPEAL, BY THE R EVENUE , IS DIRECTED AGAINST THE ORDER DATED 11 /0 4 /201 3 , PASSED BY THE CIT(A) - XXX, NEW DELHI , FOR A.Y. 200 7 - 08 . SOLE EFFECTIVE GROUND RAISED IN THIS APPEAL IS AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF FAILING ON THE PART OF THE ASSESSEE COMPANY TO DEDUCT TAX U/S 194H OF THE I.T. ACT, 1961. 2. THE FACTS, IN BRIEF, ARE THAT RETURN DECLARING NIL INCOME WAS FILED BY THE ASSESSEE ON 31 - 3 - 2008. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE INCOME - TAX ACT, 1961 (IN SHORT ACT ), WAS ISSUED. IN THE ASSESSMENT ORDER, 2 ITA NO. 3562/DEL/2013 PASSED U/S 143(3) OF THE ACT, THE LD. ASSESSING OFFICE R MADE DISALLOWANCE OF RS. 7,43,37,863/ - IN TERMS OF SECTION 40 ( A ) (IA) OF THE A CT, HOLDING THAT PAYMENT MADE TO CONSOLIDATOR M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD., FOR PROCURING LAND WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE , BUT THE ASSESSEE HAS FAILED TO DEDUCT THE TAX. 3. AT THE OUTSET , THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF THE ITAT IN THE CASE OF M/S FINIAN ESTATES DEVELOPERS PVT. LTD. FOR A.Y. 2007 - 08 [ITA NO. 2361/DE L/2011 (BY REVENUE), AND 1953/DEL/2011 (BY ASSESSEE)] , AND A C OPY OF WHICH WAS FILED IN THE BENCH AND A COPY OF THE SAME WAS PROVIDED TO THE LD. SENIOR DR. IN THE SAID CASE , THE TRIBUNAL HAS HELD THAT THE SERVICE OF CONSOLIDATOR WAS NOT LIABLE FOR DEDUCTI ON AT SOURCE U/S 194H OF THE ACT AND, THEREFORE, EXPENSES INCURRED TOWARDS CONSOLIDATION OF M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. ARE NOT DISALLOWABLE U/S 40 ( A ) (IA) OF THE ACT. THE LD. AUTHORISED REPRESENTATIVE FURTHER SUBMITTED THAT T HE ASSESSEE IN THE AFORESAID CASE IS ALSO ONE OF THE ASSOCIATED CONCERN OF THE PRESENT ASSESSEE AND M/S VIKRAM ELECTRIC EQUIPMENT PVT. LTD. WAS ALSO ACTING AS CONSOLIDATOR FOR THE ASSESSEE IN SAID CASE. HE FURTHER SUBMITTED THAT T HE DECISION IN THE CASE O F M/S FI NIAN ESTATE DEVELOPERS PVT. LTD. (SUPRA) HAS BEEN FURTHER FOLLOWED BY THE TRIBUNAL IN THE CASE OF NAYEF ESTATES PVT. LTD VS. ITO, IN ITA NO. 3062 & 4059/DEL/2012 ALSO. IT WAS FURTHER SUBMITTED THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL BEFORE THE HON BLE HIGH COURT AGAINST THE ORDER OF TRIBUNAL IN THE CASE OF FINIAN ESTATE DEVELOPERS PVT. LTD (SUPRA), AND THEREFORE, THE ISSUE HAS BECOME FINAL. 4. LD. SENIOR DR ALSO ADMITTED THAT CASE IN HAND IS COVERED BY THE SAID DECISION , HOWEVER, RELIED ON THE ORDER OF THE LD. ASSESSING OFFICER 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE COMPANY WAS INCORPORATED AND ENGAGED IN THE 3 ITA NO. 3562/DEL/2013 BUSINESS OF REAL ESTATE AND OTHER ALLIED ACTI VITIES. THE ASSESSEE HAD APPOINTED M/S. VIKRAM ELECTRIC EQUIPMENTS (P) LTD. AS CONSOLIDATOR FOR PROCURING LAND FOR THE ASSESSEE COMPANY AND THE ROLE OF CONSOLIDATOR WAS ON PRINCIPAL TO PRINCIPAL BASIS. THE ASSESSEE HAD PAID COMMISSION TO M/S. VIKRAM ELEC TRIC EQUIPMENTS (P) LTD. FOR PROCURING LAND AND THE A.O. HELD THAT THE PAYMENT REPRESENTED THE COMMISSION FOR PURCHASE OF LAND AND, THEREFORE, WAS LIABLE FOR TDS WHICH THE ASSESSEE HAD NOT DONE AND THEREFORE HE MADE DISALLOWANCE U/S 40(A)(IA) OF THE ACT. WE FIND THAT IN THE CASES AS RELIED UPON BY LD. A.R., THE PAYMENT TO VIKRAM ELECTRIC & EQUIPMENTS PVT. LTD. UNDER SIMILAR FACTS AND CIRCUMSTANCES HAS BEEN HELD TO HAVE BEEN MADE ON PRINCIPAL TO PRINCIPAL BASIS AND, THEREFORE, THE TRIBUNAL HAS HELD THAT THE RE WAS NO REQUIREMENT FOR TDS. FOR THE SAKE OF CONVENIENCE THE FINDINGS OF THE TRIBUNAL IN I.T.A. NO. 2361 AND 1953 /DEL/2011 IN THE CASE OF FINIAN ESTATE DEVELOPERS PVT. LTD. ( SUPRA) ARE REPRODUCED AS UNDER: 23. WE HAVE HEARD THE PARTIES AND HAVE PERUSE D THE MATERIAL ON RECORD. THE A.O. OBSERVED THAT THE ASSESSEE HAD SHOWN PURCHASES AND CLOSING STOCK OF LAND AT RS.60,23,16,022/ - . THIS INCLUDED A SUM OF RS,4,20,15,681/ - PAID BY THE ASSESSEE TO M/S. VIKRAM ELECTRIC EQUIPMENT P. LTD. M/S. VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD BEEN APPOINTED BY THE ASSESSEE AS A CONSOLIDATOR TO ACQUIRE AND CONSOLIDATE THE LAND HOLDING. IT WAS OBSERVED BY THE A.O. THAT AS PER THE MOU WITH VIKRAM ELECTRIC EQUIPMENT P .LTD. PAYMENTS WERE TO ACCRUE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. ONLY ON ACQUISITION OF A MINIMUM OF 27 ACRES OF LAND. OBSERVING THAT THE CONSOLIDATOR, I.E. VIKRAM ELECTRIC EQUIPMENT P. LTD. HAD NOT CONSOLIDATED THE REQUISITE MINIMUM 27 ACRES OF LAND DURING THE YEAR, THE A.O. DISALLOWED THE AMOUNT OUT OF PURCH ASES. ACCORDINGLY, 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 ELE CTRIC EQUIPMENT P. 4 ITA NO. 3562/DEL/2013 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 A.O. TO VERIFY THE ACTUAL AMOUNT INVOLVED. 25. IT HAS BEEN MAINTAINED BY THE ASSESSEE ALL THROUGH THAT THE PAYMENT TO V IKRAM ELECTRIC EQUIPMENT P. LTD. WAS ON ACCOUNT OF TRANSFER OF CERTAIN RIGHTS OF VIKRAM ELECTRIC EQUIPMENT P. LTD. IN THE LANDS TRANSFERRED TO THE ASSESSEE AND WAS NOT TOWARD ANY SERVICES RENDERED. AS A CONSOLIDATOR, VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS TO CONTACT THE LOCAL FARMERS IN AND AROUND GURGAON, WHO WERE WILLING TO SELL THEIR LAND. VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS MAKING PAYMENTS FROM ITS ACCOUNT TO THE FARMERS AND THERETO HAVE CERTAIN RIGHTS IN THE LAND. ON THE ULTIMATE TRANSFER OF LAND T O THE ASSESSEE THROUGH VIKRAM ELECTRIC EQUIPMENT P. LTD., THE FINAL PAYMENT WAS TO BE MADE TO THE FARMERS. TOWARDS THE RIGHT OF VIKRAM ELECTRIC EQUIPMENT P. LTD., 2% OF THE COST OF LAND (IN SOME CASES, EVEN A HIGHER AMOUNT0 WAS TO BE PAID TO VIKRAM ELECTR IC EQUIPMENT P. LTD., AS MUTUALLY AGREED. THIS WAS THE MUTUALLY AGREED PRICE. VIKRAM ELECTRIC EQUIPMENT P. LTD. WORKED FOR LAND ACQUISITION AND AFTER SCRUTINY OF THE CONCERNED DOCUMENTS OF THE LAND, VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD SUGGEST THE APP ROPRIATE 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 CONTENDS THAT THIS BEING SO, THE PROVISIONS OF NEITHER SECTION 194C, NOR SECTION 194H GET ATTRACTED TO THE PAYMENT MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. THE PAYMENT ALONG WITH PAYMENT MADE TO THE FARMERS DIR ECTLY REPRESENTED THE PURCHASE OF THE COST OF LAND AND HAD BEEN CORRECTLY TREATED AS SUCH IN THE ASSESSEE S BOOKS OF ACCOUNT. IT HAS BEEN CONTENDED THAT ALTERNATIVELY, IN ANY CASE, THE PAYMENT MADE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. HAS NOT AFFECTED THE TAXABLE PROFITS OF THE ASSESSEE DURING THE YEARS. THE TOTAL PURCHASES WERE LYING AS CLOSING STOCK, AS OBSERVED BY THE TAXING AUTHORITIES ALSO AND THE EFFECT OF ADJUSTMENT WITH REGARD TO THE AMOUNT PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WOULD ARISE ONL Y ON AND IN THE INSTANCES OF THE SALE OF LAND BY THE ASSESSEE. IT IS AS SUCH THAT IT HAS BEEN CLAIMED THAT NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT IS CALLED FOR, MUCH LESS 5 ITA NO. 3562/DEL/2013 ANY CONSEQUENTIAL ACTION U/S 201 OF THE ACT. IT HAS BEEN CONTENDED THAT VIKRAM EL ECTRIC EQUIPMENT P. LTD. HAD AN IMPORTANT ROLE TO PLAY AS A CONSOLIDATOR, SINCE THE ASSESSEE REQUIRED CONTIGUOUS LAND HOLDINGS IN ORDER TO DEVELOP A COLONY. IN CASE ANY LAND WHICH WAS AGREED TO BE ACQUIRED BY VIKRAM ELECTRIC EQUIPMENT P. LT. WAS NOT FOUND TO BE SUITABLE, IT WAS VIKRAM ELECTRIC EQUIPMENT P. LTD. WHICH WOULD HAVE TO BEAR THE CONSEQUENCES, INDICATING THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS NOT ACTING AS AN AGENT ON BEHALF OF THE ASSESSEE, BUT WAS WORKING ON A PRINCIPLE TO PRINCIPLE BASIS, INDEPENDENTLY. 26. THE STAND OF THE DEPARTMENT, ON THE OTHER HAND, HAS BEEN THAT MOU SIGNED BY THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. LAYS DOWN THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS ACTING AS AN AGENT OF THE ASSESSEE, RENDERING SERVICES, F OR WHICH, THE PROVISIONS OF SECTION 194 H OF THE ACT ARE APPLICABLE AND IT IS CORRECTLY APPLIED BY THE LD. CIT(A). 27. IN THIS REGARD, IT IS SEEN THAT CLAUSE 3.2 OF HT MOU BETWEEN THE ASSESSEE AND VIKRAM ELECTRIC EQUIPMENT P. LTD. MAKES IT CLEAR THAT VIKRA M ELECTRIC EQUIPMENT P. LTD. OR ITS AGENT AGREED TO ASSIGN THEIR RIGHTS TO PURCHASE THE LAND IN FAVOUR OF THE ASSESSEE. IT WOULD BE APPROPRIATE TO REPRODUCE HERE, THE SAID CLAUSE 3.2: - 3.2 IN CONSIDERATION OF THE CONSOLIDATOR OR ITS AGENT/NOMINEE ASSIGNIN G 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 (UNLESS THE BUYER COMPANY DECIDES TO PROCURE LESS THAN 27 ACRES THROUGH THE CONSOLIDATOR) AND ALL THE ISSUES REL ATING TO POSSESSION AND MUTATION OF SUCH LAND ARE SETTLED TO THE SATISFACTION 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 THROUGH VIKRAM ELECTRIC 6 ITA NO. 3562/DEL/2013 EQUIPMENT P. LTD. , VIKRAM ELECTRIC EQUIPMENT P. LTD., WAS TO PROCURE 27 ACRES OF LAND FOR HT ASSESSEE, FAILING WHICH, NO PAYMENT WAS TO BE MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. 29. THIS CLEARLY SHOWS THAT VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS TRANSACTIN G ON A PRINCIPLE TO PRINCIPLE BASIS AND IT CANNOT BE SAID THAT THE PAYMENT WAS MADE BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. FOR RENDERING OF ANY SERVICE. THE PROVISIONS OF SECTION 194H OF THE ACT ARE, THEREFORE, NOT AT ALL APPLICABLE. 30. MOR EOVER THE AMOUNT PAID TO VIKRAM ELECTRIC EQUIPMENT P. LTD. WAS DULY REFLECTED BY THE ASSESSEE IN THE PURCHASES CLOSING 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 ASSESSEE S PAPER BOOK SHOWS THAT ALMOST 2% OF HT SALE VALUE WAS BEING PAID BY THE ASSESSEE TO VIKRAM ELECTRIC EQUIPMENT P. LTD. AS CONSIDERATION FOR TRANSFERRI NG VIKRAM ELECTRIC EQUIPMENT P. LTD. S RIGHT. THIS WAS IN TERMS OF THE AFORE - MENTIONED CLAUSE. 32. PERTINENTLY, NO ADDITION HAVING BEEN MADE FOR THE YEAR BY THE A.O., THE ALTERNATE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT NO ADDITION CAN BE MADE DURING THE YEAR, STANDS ACCEPTED BY BOTH THE AUTHORITIES BELOW. 33. THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN ANY CASE DO NOT APPLY, THE ASSESSEE HAVING NOT CLAIMED ANY DEDUCTION 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 TAXABLE INCOME FILED. IT WAS ONLY THAT HT A.O. RECORDED A LOSS OF RS,19,700/ - . THIS OBVIOUSLY, DID NOT INCLUDE ANY ADDITION OF EITHER RS.4.02 CRORES OR RS.1.24 CRORES. 6 . WE FIND TH AT IN THE PRESENT CASE ALSO, SIMILAR PAYMENTS WERE MADE BY ASSESSEE TO M/S. VIKRAM ELECTRIC EQUIPMENT P. LTD. ON THE SIMILAR TERMS AND CONDITIONS. THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS IN HIS ORDER DEMONSTRATED THE SIMILAR ITY OF FACTS OF THE CASE OF THE ASSESSEE WITH THE FACTS OF 7 ITA NO. 3562/DEL/2013 CASE IN M/S FINIAN ESTATE DEVELOPERS PVT. LTD. (SUPRA). WE AGREE WITH THE LD. COMMISSIONER OF INCOME TAX(APPEALS) THAT THE FACTS AND CIRCUMSTANCES OF THE CASE IN HAND ARE IDENTICAL TO THE FACTS AND CIRCUMSTANCES WITH THE CAS E OF M/S FINIAN ESTATE DEVELOPERS PVT. LTD. (SUPRA). THUS, THE CASE IN HAND BEING SQUARELY COVERED BY THE DECISION OF THE ITAT IN THE CASE OF M/S FINIAN ESTATES DEVELOPERS PVT. LTD. (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE EXPENSES INCURRED BY THE ASSESSEE TOWARDS CONSOLIDATION OF LAND WAS NOT LIABLE TO DEDUCT TAX U/S 194H OF THE ACT AND DISALLOWANCE U/S 40 ( A ) (IA) OF THE ACT. ACCORDINGLY , THIS GROUND OF THE R EVENUE IS DISMISSED. 7 . IN THE RESULT, R EVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 2 0 /11/2015. S D / - S D / - ( DIVA SINGH ) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 /11/2015. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.