Nayef Estates Pvt. Ltd., New Delhi vs Assessee

Nayef Estates Pvt. Ltd., Vs. ITO, Ward 13(2), 1-E, Naaz Cinema Complex, New Delhi Jhandewalan Extension, New Delhi. GIR / PAN:AACCN5301Q I.T.A.No. 4059/Del/2012 (Assessment Year 2008-09) ITO, Ward 13(2), Vs. Nayef Estates Pvt. Ltd., New Delhi 1-E, Naaz Cinema Complex, Jhandewalan Extn. New Delhi. (Appellant) (Respondent)

Appellant by : Shri Pradeep Denodia, CA Respondent by : Shri P Dam Kanunjha, Sr. DR

Date of hearing : 16.03.2015 Date of pronouncement : 25.03.2015

ORDER

PER T.S. KAPOOR, AM:

These are cross appeals field by assessee and the revenue respectively against the order of Ld. CIT(A) dated 29.02.2012 The grounds of appeal taken by assessee as well as Revenue are reproduced below:

2 ITA No.3062, 4059/Del/2012 I.T.A.No. 3062/Del/2012 (Assessment Year 2008-09):

"1. That the impugned order dated 29.02.2012 passed by the learned Commissioner of Income-tax (Appeals)-XVI, New Delhi is bad in law and wrong on facts.

2. That on the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals)XVI erred in law in upholding the action of the Assessing Officer in making disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 amounting to Rs. 3,20,47,734/- paid by the assessee to the consolidator for transfer of rights.

2.1 That on the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-XVI erred in law in holding that payment made by the appellant to consolidator is in the nature of commission / brokerage / fees for services on which TDS was required to be deducted.

3. That on the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals)-XVI erred in not considering the order dated 05.10.2011 in ITA No. 2361 (Del) 2011 of ITAT, New Delhi in the case of Finian Estates Developers Pvt. Ltd for the A.Y. 2007-08 filed during the appellate proceedings, wherein hon'ble ITAT has held that provision of section 40(a) (ia) of the I.T. Act, does not get invoked with respect to payment made to consolidator."

I.T.A.No. 4059/Del/2012 (Assessment Year 2008-09):

"1. Whether on the facts & in the circumstances of the case, the Ld. CIT(A) has erred in not quantifying the disallowance u/s 40(a)(ia) as the payment of Rs.3,20,47,734/~ made by the assessee for consolidation of a land deal to M/s Vikram Electric Equipment Pvt. Ltd. comprises cost of land as well as consolidation fee paid to M/s Vikram Electric Equipment Pvt. Ltd. for its services of finalizing the deal. The assessee has claimed the consolidation fees, which is subject matter of TDS under the wrong head i.e. Purchase of Land in the P&L A/c in order to avoid tax liability."

3 ITA No.3062, 4059/Del/2012 2. At the outset, Ld. A.R. submitted that the appeal of assessee is covered by the earlier order of the Tribunal by the case of group companies of assessee and in this respect, our attention was invited to paper book filed by assessee. It was submitted that solitary issue involved in this appeal is as to whether the amount paid to consolidator M/s. Vikram Electric Equipment Pvt. Ltd. amounting to Rs.3,20,47,734/- was liable to be disallowed u/s 40(a)(ia) for non deduction of TDS u/s 194C of the Act. It was submitted that this issue had come up in various cases where the Hon'ble ITAT had decided the same in favour of assessee. Ld. A.R. placed his reliance on the following case laws:

i) Finian Estate Developers Pvt. Ltd. Vs ITO 142 TTJ 545

ii) Zebina Real Estate Pvt. Ltd. & Zenobi Builders & Constructions Pvt.

Ltd. in I.T.A.No. 1429 and 1430/Del/.2011.

iii) M/s. Ethan Estate Developments Pvt. Ltd. in I.T.A.No. 1952/Del/2011

iv) M/s. Red Topaz Real Estate Pvt. Ltd. in I.T.A.No.1501/Del/2011.

v) M/s. Fullbright Builders & Developers Pvt. Ltd. in I.T.A.No. 1954/Del/2011.

vi) M/s. Penthea Builders & Developers Pvt. Ltd. in I.T.A.No. 1951/Del/2011.

3. Ld. A.R. further submitted that the lead case decided by the Tribunal was in the case of Finian Estate Developers Pvt. Ltd. and in all other cases, this lead case has been followed. It was further submitted that the department has not filed any appeal before Hon'ble High Court against the order of Tribunal in the case of Finian Estate Developers Pvt. Ltd. and therefore, the issue has become final.

4 ITA No.3062, 4059/Del/2012 4. Ld. D.R. on the other hand submitted that the assessee had paid commission and brokerage and it avoided applicability of tax deduction at source as it used the word 'consolidator' instead of 'broker' and Ld.D.R. heavily relied upon the orders of authorities below.

5. Regarding appeal filed by Revenue, Ld. D.R. submitted that the assessee had wrongly claimed the amount of consolidation fee under the wrong head of purchase of land in the P & L account in order to avoid tax liability. The Ld. A.R. on the other hand submitted that the assessee being in the business of development of land, has treated the purchase of land along with consolidation fee as purchase of land and this was as per the practice followed by various assessees engaged in the similar kind of activities.

6. We have had rival parties and have gone through the material placed on record. We find that the assessee company was incorporated and engaged in the business of real estate and other allied activities. The assessee had appointed M/s. Vikram Electric Equipments (P) Ltd. as consolidator for procuring land in and around Gurgaon for the assessee company and the role of consolidator was on principal to principal basis. The assessee had paid commission to M/s. Vikram Electric Equipments (P) Ltd. for procuring land in and around Gurgaon 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 a series of 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 5 ITA No.3062, 4059/Del/2012

on principal to principal basis and, therefore, the Tribunal has held that there 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. are reproduced as under:

"23. We have heard the parties and have perused 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 purchases. 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 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 A.O. to verify the actual amount involved.

25. It has been maintained by the assessee all through that the payment to Vikram 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 to the assessee 6 ITA No.3062, 4059/Del/2012

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 Electric 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 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 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 directly 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 only 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 any consequential action u/s 201 of the Act. It has been contended that Vikram Electric 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.

7 ITA No.3062, 4059/Del/2012 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, for 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 Vikram 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 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 (unless the buyer company decides to procure less than 27 acres through the consolidator) and all the issues relating 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 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 transacting 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.

8 ITA No.3062, 4059/Del/2012 30. Moreover 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 considered 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 transferring 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."

7. We find that 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. Clause 3.4 of the agreement with the Vikram Electric is similar as clause 3.2 of agreement referred to in by Hon'ble Tribunal in the case law relied by Ld. A.R. and reproduced above. In the present case also as in the case law relied by Ld. A.R. The land as per consolidator's fee has been reflected as stock in trade. Therefore, respectfully following the order of 9 ITA No.3062, 4059/Del/2012

Tribunal in the case of Finian Estates Developers Pvt. Ltd. (supra), we allow the appeal filed by assessee.

8. As regards the Revenue's appeal, the only grievance of revenue is that Ld. CIT(A) has erred in not quantifying disallowance u/s 40(a)(ia) as payment of Rs.3,20,47,734/- made by assessee relates to the services for finalizing the deal and assessee had claimed consolidation fee under the wrong head of purchase. We find that the issue agitated by revenue is not coming out form the order of Ld. CIT(A). Ld. CIT(A) has just upheld the addition made by A.O. In view of above, appeal filed by Revenue is dismissed.

9. In nutshell, appeal filed by assessee is allowed whereas appeal filed by Revenue is dismissed.

10. Order pronounced in the open court on 25th March, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER Date: 25.03.2015 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order (ITAT, New Delhi).

10 ITA No.3062, 4059/Del/2012 S.No. Details Date Initials Designation 1 Draft dictated on 16/3 Sr. PS/PS 2 Draft placed before author 16,17,18 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/3 Sr. PS/PS 6 Kept for pronouncement 25/3 Sr. PS/PS 7 File sent to Bench Clerk 25/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order