TMI Blog2015 (12) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is the sole project undertaken by the assessee company, while framing the assessment order dated 01-03-2013 u/s 143(3) of the Act. The AO accepted the loss sustained by the assessee company in this project to be allowed to be set off against other income of the assessee after application of mind and considering relevant material on record which was one of the plausible view taken by the AO which view cannot be considered as an erroneous view. The CIT also has not brought on record that how the view undertaken by the AO could be considered as erroneous and prejudicial to the interest of Revenue. We, therefore, hold that the order passed by the CIT u/s 263 of the Act is not sustainable in law and is hereby set aside - Decided in favour of assessee. - ITA No. 2653/Mum/2015 - - - Dated:- 21-10-2015 - Joginder Singh, JM And Ramit Kochar, AM For the Appellant : Shri Haridas Bhat For the Respondent : Shri G M Doss ORDER Per Ramit Kochar, Accountant Member This appeal by the assessee company is directed against the Order by the Principal Commissioner of Income Tax-13, Mumbai (Hereinafter called the CIT ) dated 26th March 2015 passed u/s 263 of Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2736 sq meters, of ₹ 8,88,02,711/- whereas sale price of the entire project has been shown at ₹ 7,98,00,000/- Thus, there is a loss of ₹ 90,02,711/-. Further, it was noticed by the CIT that the assessee company has commercial property from which it has rental income of ₹ 1,52,01,725/- and interest income of ₹ 18,06,136 /- and inspite of income from these sources of ₹ 1,70,07,861/-, the assessee company has shown gross total income only of ₹ 3,40,927/- and after claim of TDS of ₹ 27,54,028/, assessee company has claimed refund of ₹ 22,90,571/-. These facts reveals that on account of loss in respect of housing project, the actual effect of rental income and interest income of ₹ 1,70,07,861/- has been negated. The AO has not investigated the facts from this angle nor has he made any enquiry from the purchasing party. The AO has also not examined the comparative selling rate of immovable properties in Dist. Gandhinagar, Gujarat. Thus, the loss of construction project declared by the assessee company has been accepted by the A.O. without verification. The CIT observed that as regards the second issue of non verification of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was delay in the project whereby the costs escalated and the assessee company start looking for the buyer to sell the entire project and finally got the buyer M/s Silverline Enterprise to sell the entire project for ₹ 7,98,00,000. The said buyer mediated between the assessee company and M/s Sarovar Developers Pvt. Ltd. to settle the dispute and out of court settlement was arrived at between the assessee company and M/s Sarovar Developers Pvt. Ltd. The assessee company entered into deed of cancellation as well deed of rectification both dated 20th May 2009 with M/s Sarovar Developers Pvt. Ltd.. The said Buyer M/s Silverline Enterprise paid ₹ 75,00,000/- directly to M/s. Sarovar Developers Pvt. Ltd. being the out of court settlement amount and the suit was withdrawn by M/s Sarovar Developers Pvt. Ltd. for which the necessary orders were passed by Hon ble Add. Sen. C.J.Gandhinagar on 20th May 2009 in suit no. R.C.S No. 144 of 09 disposing of the suit as withdrawn. The assessee company submitted that the sale agreement dated 07th July 2009 was entered into between M/s. Silverline Enterprise and the assessee company whereas the developer M/s Sarovar Developers Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice was issued on 6.2.2013 requesting the assessee to give reasons with supporting evidences as to why disallowance of ₹ 75,00,000/ - should not be made u/s.40(a)(ia). Assessee's reply is reproduced as under: 3.2 Reply dated.11.2.2013: As regards to the payment of ₹ 75,00,000/- to M/s. Sarovar Developers Pvt. Ltd. by M/s. Silver Enterprises, the payment was not paid towards construction but the said payment is the settlement amount as per the out of court settlement succeeding the suit No. 144/209 filed by M/s. Sarovar Developers Pvt. Ltd. Ltd. in the court of 5th Additional senior Civil judge, Gandhinagar, Gujrat,. The relevant papers have already been submitted and are on your records. The said payment of ₹ 75, 00,000/- is not covered u/s. 194C of the Income Tax Act,1961 as it is not pursuant to contract but the settlement amount, the payment of which was made by M/s Silver Enterprises, the buyer of the property under reference directly out of the sale consideration to ensure that the developers does not create any problem in the deal and accordingly the developer was made a confirming party in the sale deed, copy of which is already on your ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- lakh paid by M/s. Silverline Enterprises - the buyer of the said property directly to M/s. Sarovar Developers Pvt. Ltd - the developer is towards out of court settlement money to withdraw the petition in order to get the sale deal allowed by the developer and also for not creating any nuisance/problem in future in the sale deal and accordingly the said developer became a confirming party in the sale deed which is already on your record. Since the amount of ₹ 75,00,000/- was never paid by the assessee company to the developer hence there was no reason to deduct TDS there on. Since the assessee has received less amount hence it was having two options - l)to account for the net amount of ₹ 7,23,00,000/- as sale value of the said property 2) to account for the gross sale and show the short receipt of ₹ 75,00,000/- towards expenses and the best possible account head was development charges. The assessee is correctly accounted as per the second option. In view of the above there is no reason that the said amount of ₹ 75,00,000/- be disallowed u/s. 40(a)(ia) of The Income Tax Act, 1961. 3.3 Assessee's reply has been perused carefully and pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt authority. Thereafter it is settled between both the parties that due to circumstances beyond control of both B.U. permission has not been received. Hence, it is agreed between the first party and the second party that tile first party will pay ₹ 75,00,000/- including interest as a full and final settlement towards the development towards the development of the said property. 3.5 From the above it can be seen that out of ₹ 75,00,000/- debited by the assessee an amount of ₹ 70,00,000/ - pertains to the balance consideration payable as per original contract dtd.25.1.200S. The original contract was for development of property i.e. construction of building as per approved plans. Further the balance amount of ₹ 5,00,000/ - constitutes interest payment as mentioned in the agreement dated 20.05.2009.This again attracts the provisions of section 194A. As the entire payment of ₹ 75 lacs has been made towards contract for development of property it attracts the provisions of section 194C. 3.6 The contention that the payment has not been made by the assessee company but paid by the buyer directly to M/s. Sarovar Developers Pvt. Ltd. to defend its st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, Of such sum as income-tax on income comprised therein. 3.9 On plain reading of the section it is understood that a person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person, he has to deduct tax at the time of crediting of such sum to the account of the contractor or at the time of payment thereof whichever is earlier. 3.10 In the instant case the assessee is the person who was responsible for paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny also submitted that the additions of ₹ 75,00,000/- made by the AO in the assessment order dated 01.03.2013 u/s 143(3) of the Act on account of failure of the assessee company to deduct TDS on payment of out of court settlement amount directly by M/s Silverline Enterprise to M/s Sarovar Developers Private Limited on behalf of the assessee company has already been deleted by Hon ble Mumbai Tribunal in ITA No. 6764/Mum/2013 in the case of Vidyasagar Investments Private Limited v. The ITO for assessment year 2010-11. The assessee company submitted that the AO passed the assessment order u/s 143(3) dated 01-03-2013 after considering all the facts and material before him with respect to this project at Gandhinagar, Gujarat which is the only project undertaken by the assessee company and the AO accepted the cost of the project and consequent loss incurred by the assessee company arising out of sale of this project after due application of mind and considering all relevant material which was on records and is part of assessment records. The assessee company submitted that proceedings u/s 263 of the Act are bad in law as the AO has already accepted the cost of construction of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the M/s Sarovar Developers Pvt. Ltd. and also entered into development agreement with the said party. The assesseee company has explained that due to the delay in receipt of clearances, it withheld the amount of ₹ 70,00,000/- payable to M/s Sarovar Developers Private Limited which prompted the said company M/s Sarovar Developers Private Limited to file suit against the assessee company for recovery of their dues in the court of Hon. Principal Civil Judge of Gandhinagar, Gujarat which was registered as suit no. C.S.No. 144 of 2009 and it is mainly the delay in receipt of clearances and subsequent court litigations which escalated costs and consequent losses suffered by the assessee company. The assessee company has submitted that then it decided to sell the entire project which was struck due to above mentioned court litigation and non receipt of clearances.The assessee company got the buyer M/s Silverline Enterprise for ₹ 7,98,00,000 to sell the entire project en-bloc. The said buyer mediated between the assessee company and M/s Sarovar Developers Pvt. Ltd. to resolve the dispute between the assessee company and M/s Sarovar Developers Private Limited and then out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 6,05,60,000/ - to the contractor and ₹ 70 Lacs remained outstanding. Thereafter a dispute arose between, the assessee and the contractor regarding obtaining B.U.(Building Usage) permission for the said building. This dispute was settled vide agreement dated 20.05.2009 and assessee paid ₹ 75 lacs on 20.5.2009 to the contractor towards development charges. However, the assessee failed to deduct tax at source u/s 194C on the payment of ₹ 75 lacs. Hence, a show cause notice was issued on 6.2.2013 requesting the assessee to give reasons with supporting evidences as to why disallowance of ₹ 75,00,000/ - should not be made u/s.40(a)(ia). Assessee's reply is reproduced as under: 3.2 Reply dated.11.2.2013: As regards to the payment of ₹ 75,00,000/- to M/s. Sarovar Developers Pvt. Ltd. by M/s. Silver Enterprises, the payment was not paid towards construction but the said payment is the settlement amount as per the out of court settlement succeeding the suit No. 144/209 filed by M/s. Sarovar Developers Pvt. Ltd. Ltd. in the court of 5th Additional senior Civil judge, Gandhinagar, Gujrat,. The relevant papers have already been submitted and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not applicable as it is not the payment under the development agreement but towards out of court settlement in order to get the sale deal through. In view of the above, there seems no reasons to disallow the expenses u/s. 40(a)(ia) of the Income Tax Act, 1961. Without prejudice to the above The real sales consideration received by the assessee company is ₹ 7,23,00,000/- (Rs.7,98,00,000/-less ₹ 75,00,000/-) and not ₹ 7,98,00,000/-. The Sum of ₹ 75,00,000/- lakh paid by M/s. Silverline Enterprises - the buyer of the said property directly to M/s. Sarovar Developers Pvt. Ltd - the developer is towards out of court settlement money to withdraw the petition in order to get the sale deal allowed by the developer and also for not creating any nuisance/problem in future in the sale deal and accordingly the said developer became a confirming party in the sale deed which is already on your record. Since the amount of ₹ 75,00,000/- was never paid by the assessee company to the developer hence there was no reason to deduct TDS there on. Since the assessee has received less amount hence it was having two options - l)to account for the net amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the development of the said property. The relevant clause at page 4 of the Settlement Agreement dated 20.05.2009 is reproduced as under: As per the said development agreement tile first party has agreed to pay the second party total construction cost of ₹ 6,75,60,000/- out of which first party has paid to the second party ₹ 6,05,60,000/-. The first party has to pay the second party remaining amount of ₹ 70,00,000/- on receiving of B. U. permission from competent authority. Thereafter it is settled between both the parties that due to circumstances beyond control of both B.U. permission has not been received. Hence, it is agreed between the first party and the second party that tile first party will pay ₹ 75,00,000/- including interest as a full and final settlement towards the development towards the development of the said property. 3.5 From the above it can be seen that out of ₹ 75,00,000/- debited by the assessee an amount of ₹ 70,00,000/ - pertains to the balance consideration payable as per original contract dtd.25.1.200S. The original contract was for development of property i.e. construction of building as per approved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee cannot escape the responsibility cast upon it under section 194C on the ground that the payment was made by M/s. Silverline Enterprise when it was paid on the specific instruction of the assessee company. Applicability of Section 194C 3.8 Without prejudice to the above the provisions of section 194C and applicability in the instant case is discussed as under: Section 194C. lays down that Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to- (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, Of such sum as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise to M/s Sarovar Developers Private Limited on behalf of the assessee company being out of court settlement amount without deduction of TDS which was considered by the AO as having paid towards the development of the said property which addition was finally deleted by Mumbai Tribunal in ITA No. 6764/Mum/2013 in Vidyasagar Investments Private Limited v. The ITO for assessment year 2010-11. It was also noted by the AO that the assesssee company has made balance payment of ₹ 6,05,60,000/- to M/s Sarovar Developers Private Limited towards construction of the project after deducting TDS as per the Act. Thus, it could not be said that the AO has not considered this project, its cost of construction, sale of project and other facts and circumstances surrounding this project which is the sole project undertaken by the assessee company, while framing the assessment order dated 01-03-2013 u/s 143(3) of the Act. The AO accepted the loss sustained by the assessee company in this project to be allowed to be set off against other income of the assessee after application of mind and considering relevant material on record which was one of the plausible view taken by the AO which view cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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