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TMI Blog2015 (11) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the action of the Assessing Officer in making 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 transfer of rights. 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 assesee 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, the 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 appellant's profit liable to tax as the entire purchases form part of closing stock of the appellant at the year end. 3.1That the order of learned CIT(Appeals) is erroneous and self contradictory. The learned CIT(Appeals) has erred in confirming the addition after holding that closing stock also needs to be reduced. The learned CIT(Appeals) ought to have held that the transaction of Rs. 93,39,946/- does not res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acres of land for which M/s. Vikram Electric was to act as consolidator for identifying the land, approaching the land owners and negotiating with them and carrying out due diligency etc. It was argued that the land measuring 12.83 acres purchased during this year forms part of the total 27 acres of land which will be purchased by the assesee through M/s. Vikram Electric Co. (P) Ltd. as per the MOU. It was observed 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. Without prejudice to the above argument, it is observed by the AO that the consolidation charges received by M/s. Vikram Electric Co. (P) Ltd. is in the nature of brokerage or service charges subject to TDS u/s 194H of the Act. Alternatively, since the payment was made under the MoU, it is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above amount of Rs. 93,39,946/- or of 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 appellant company. The appellant has also failed to substantiate as to what work was actually done by M/s. Vikram Electric Co. (P) Ltd. in respect of the 12.83 acres of land purchased by the appellant. The appellant's main 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 nature 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 appellant. The appellant's subsequent plea before the AO is that the 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 relation to the above land in its P & L A/c. The appellant has also claimed that the above amount does not represent remuneration to M/s. Vikram Electric Co. (P) Ltd. and it is claimed that the remuneration will be decided mutually af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, 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 for 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 consolidator. The Ld. AR's argument that the remuneration will be decided on completion of procurement of the entire 27 acres is also too indefinite and vague since the consolidator cannot be possibly wait indefinitely for some uncertain amount of remuneration to be decided and paid on conclusion of the probable event of procurement of the entire 27 acres. 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 consolidator. 2.4.4. In view of the above, said payment of Rs. 93,39,946/- would constitutes "brokerage or commission or fees for professional services" which is subject to deduction of TDS u/s 194H of the 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 the order of the Tribunal in the case of Finian Estates Developers (P) Ltd. wherein it is held as follows :- "23. We have heard the parties and have perused the material on record. The AO 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 Equipments 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 AO 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 AO disallowed the amount out of purchases. Accordingly, he also reduced the closing stock by a similar amount. The closing stock was thus determined at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipment 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 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. Ltd. 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. makes it clear 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if such payment is not a fair compensation paid by the assessee to Vikram Electric Equipment P. Ltd. which, anyhow, is not an impediment in holding, as above, that the transactions between the assessee and Vikram Electric Equipment P. Ltd. are on a principle to principle basis, 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 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 the AO 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. 34. In view of the above discussions, the grievance 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 ident ..... X X X X Extracts X X X X X X X X Extracts X X X X
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