2014 (1) TMI 1079 - AT - Income Tax

Addition on account of sale of units - handing over of some flats without consideration in lieu of services provided by the trasnfree - Valuation - According to AO agreement / transfer is a fabricated/make belief instrument designed to siphon off taxable profits of the assessee-company and thereby to evade legitimate taxes payable. - Held that - A reading of the agreement shows that in the development of the plot of land there were to be 84 flats and 6 shops - Accordingly SVA Securities Pvt. Ltd. was to be given 20 flats and 2 shops as consideration for grant of development rights, M/s Kaypee developers was to receive 9 flats and 2 shops as consideration for services performed, benefits granted and the balance was to remain with the appellant company as developer - It is logical to presume that each party in the project had involved itself in the project for profits and gains. When the appellant entered the project, the units were given to SVA Securities Pvt. Ltd. at 25% of total units and remaining amount shall be appropriated between the remaining two parties - With the entry of the appellant into the project 75% of the profit would not lie with M/s Kaypee Developers but would be allocated between M/s Kaypee Developers and the appellant in proportion to the work done by them As M/s Kaypee Developers had been allotted the work of getting all legal and other procedural clearances their share of the project was as described above - It is also seen that M/s. Kaypee Developers had carried out their part of the agreement - The assessing officer has not looked into the case in totality by taking into consideration all the documents involved and the history of the case but has concentrated only on a part of it - Accordingly the assessing officer has arrived at a conclusion as recorded in the assessment order - The AO has not conducted any investigation/enquiry in the case like questioning SVA Securities (P) Ltd, M/s. Kaypee Developers etc - The observation of the assessing officer in his order regarding the applicability of sec 40A(2)(b) of the I.T. Act is based mainly on presumptions and surmises influenced by the fact that the partners of M/s Kaypee Developers were also directors of the appellant company - No effort has been made to establish that there has been tax evasion by the appellant and that there has been diversion of profit by the appellant - The assessing officer has made no enquiry into the fact whether the work said to be done by M/s Kaypee Developers was actually done or not - Unless this had been done the documents as produced by the appellant to establish the fact that M/s Kaypee Developers had a major role to play in the case cannot be discounted or rejected. The appellant had agreed to pay a sum of Rs.1,44,85,000/ that is the value of the units to M/s Kaypee Developers for the services rendered by them - The A.O. has disregarded the transfer of units by the appellant to M/s.Kaypee Developers and considered their face value as profit of the appellant - The CIT(A) deleted the addition - An addition based on suspicion and presumption cannot survive - The profit from the sale of the units has been declared for taxation by M/s K ypee Developers and has been accepted by the Income Tax Department without any dispute - As the same stands taxed in the hands of M/s Kaypee Developers taxing it again in the hands of the appellant would lead to double taxation of the same amount which is not permissible under the Income Tax Act - Decided against Revenue. Acceptance of additional evidence - Held that - All details in respect of the said project and services rendered by Kaypee Developers were mentioned in MOU with the assessee and no such additional documents were filed before ld. CIT(A) which could be said to be additional evidence - CIT(A) has considered the facts in its entirety, which the AO failed to consider - Letter of authority given by SVA Securities Pvt Ltd granting permission by CIDCO for change of use of plot are supporting documents/evidence only to establish that M/s Kaypee Developers rendered services in respect of the Project Mangla - There is no violation of Rule 46A of the Rules - Decided against Revenue.

Summary

Issues Involved:

1. Deletion of addition based on MOU dated 4.11.2003.
2. Addition of fresh evidence without referring to the AO, contravention of Rule 46A.
3. Justification of addition of Rs. 3,25,24,400/- to the income of the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Addition Based on MOU Dated 4.11.2003:

The Department challenged the deletion of an addition based on an MOU between M/s. SVA Securities and M/s. Kaypee Developers, which was not produced before the AO. The assessee, a private limited company engaged in real estate development, had entered into various agreements for the development of a project named "Mangala." The AO questioned the legitimacy of the MOU and the services provided by Kaypee Developers, considering it a fabricated instrument designed to siphon off taxable profits. However, the CIT(A) found that the MOU was genuine and that Kaypee Developers had indeed rendered significant services, including obtaining necessary permissions and sanctions for the project. The CIT(A) concluded that the addition made by the AO was not justified and deleted it. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not considered all relevant documents and the history of the case.

2. Addition of Fresh Evidence Without Referring to the AO, Contravention of Rule 46A:

The Department argued that the CIT(A) had added fresh evidence without referring it to the AO, violating Rule 46A. However, the Tribunal found that the CIT(A) had not considered any new evidence that was not already available to the AO. The documents in question were merely supporting evidence to establish that Kaypee Developers had rendered services for the project. The Tribunal held that there was no violation of Rule 46A and dismissed this ground of appeal.

3. Justification of Addition of Rs. 3,25,24,400/- to the Income of the Assessee:

The AO had added Rs. 3,25,24,400/- to the income of the assessee, representing the sale price of 9 flats and 2 shops given to Kaypee Developers. The AO argued that the services provided by Kaypee Developers were general and basic in nature and that the payment for these services was not justified. The CIT(A) found that the agreements between the assessee, SVA Securities, and Kaypee Developers were genuine and that Kaypee Developers had provided significant services, including obtaining various permissions and sanctions. The CIT(A) also noted that the income from the sale of the flats and shops had been declared by Kaypee Developers and taxed accordingly, preventing double taxation. The Tribunal agreed with the CIT(A)'s reasoning and upheld the deletion of the addition, stating that the transaction was a legitimate business expense and not an attempt to evade taxes.

Conclusion:

The Tribunal dismissed the Department's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 3,25,24,400/- and finding no violation of Rule 46A. The Tribunal concluded that the agreements and transactions between the assessee and Kaypee Developers were genuine and that the services provided were significant and justified. The order was pronounced on 17.01.2014.