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2015 (6) TMI 242 - ITAT DELHI

2015 (6) TMI 242 - ITAT DELHI - TMI - TDS u/s 194H - Disallowance u/s 40(a)(ia) - 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 - Held that:- 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 assesse.

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see 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. 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. See case of Finian Estates Developers Pv .....

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ed below: 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 ₹ 3,20,47,734/- paid by the assessee to t .....

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1 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 ͅ .....

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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 ₹ 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 .....

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. 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 .....

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ax 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 .....

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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 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. .....

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ikram 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 ₹ 54,03,00,341/-. 24. Before the Ld. CI .....

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red 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 through Vikram Electric Equipment P. Ltd., the final payment was to be made to the farmers. Towards the right of .....

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ccount 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 b .....

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ed 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 con .....

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correctly applied by the Ld. CIT(A). 27. In this regard, it is seen that clause 3.2 of the 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 a .....

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ed 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 the 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 .....

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is called for. 31. Further still, the chart at page 16 of the assessee s paper book shows that almost 2% of the 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 acc .....

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