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2015 (6) TMI 242 - AT - Income TaxTDS 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. 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.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. 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 Pvt. Ltd 2012 (6) TMI 705 - ITAT, Delhi - Decided in favour of assesse.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961. 2. Nature of payment made to the consolidator (whether it is commission/brokerage/fees for services). 3. Applicability of TDS under Section 194C and 194H of the Income-tax Act, 1961. 4. Correct head of expense classification in Profit & Loss Account. Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961: The primary issue revolves around whether the amount paid to the consolidator, M/s. Vikram Electric Equipment Pvt. Ltd., amounting to Rs. 3,20,47,734/- should be disallowed under Section 40(a)(ia) due to non-deduction of TDS under Section 194C. The Tribunal found that in similar cases, payments to the consolidator were made on a principal-to-principal basis and not for services rendered, thus not attracting the provisions of Section 194C or 194H. The Tribunal cited several precedents, including Finian Estate Developers Pvt. Ltd., where it was held that such payments do not require TDS deduction and should not be disallowed under Section 40(a)(ia). 2. Nature of Payment Made to the Consolidator: The Tribunal examined whether the payment made to the consolidator was in the nature of commission, brokerage, or fees for services, which would necessitate TDS deduction. The Tribunal noted that the consolidator acted on a principal-to-principal basis, acquiring land rights and transferring them to the assessee. This arrangement indicated that the payment was for the transfer of rights rather than for services rendered. The Tribunal referred to the Memorandum of Understanding (MOU) clause, which clarified that the consolidator was not acting as an agent but independently, thus negating the need for TDS on commission or brokerage. 3. Applicability of TDS under Section 194C and 194H: The Tribunal analyzed the applicability of Sections 194C and 194H concerning the payments made. It concluded that since the consolidator was not rendering services but transferring land rights on a principal-to-principal basis, the provisions of Section 194C (contract payments) and Section 194H (commission or brokerage) were not applicable. The Tribunal emphasized that the payment was part of the land purchase cost and should be treated as such in the assessee's books. 4. Correct Head of Expense Classification in Profit & Loss Account: The Revenue argued that the assessee incorrectly classified the consolidation fee under the "purchase of land" head to avoid tax liability. The Tribunal found that the assessee, engaged in land development, appropriately treated the purchase of land and consolidation fee as the cost of land in its accounts. This practice was consistent with industry norms for similar businesses. The Tribunal noted that the amount paid to the consolidator was duly reflected in the closing stock, and no sales had been made during the year, thus supporting the assessee's classification. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the payment to the consolidator did not require TDS deduction and should not be disallowed under Section 40(a)(ia). The Tribunal dismissed the Revenue's appeal, noting that the CIT(A) had correctly upheld the addition made by the Assessing Officer without any need for further quantification. The Tribunal's decision was based on the consistent treatment of similar cases and the specific terms of the MOU between the assessee and the consolidator. The order was pronounced in the open court on 25th March 2015.
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