2017 (9) TMI 1920 - AT - Income Tax

Capital gain computation - JDA agreement - HELD THAT - There is no dispute that as per JDA entered into between the assessee company and Shri Ramesh Ramesh was required to bear the expenditure incurred to make the schedule land usable for development and even if such expenses is paid by the other party the same is to be debited to his account. In view of this clear understanding as per JDA it cannot be accepted that this expenditure of 65 lakhs is because of business exigency because whatever may be the dispute between Shri Ramesh and his sister it was to be settled by Shri Ramesh at his own cost and such expenses is not required to be borne by the assessee company. We are of the considered opinion that the order of CIT(A) is not sustainable because these paras of JDA were not considered by CIT(A) at all. Regarding various judgments cited by ld. AR of assessee we would like to observe that in view of this fact that the assessee had not been able to establish that the payment in question was on account of business exigency and it was required to be borne by the assessee company and not by Shri Ramesh none of the judgments cited by ld. AR of assessee is relevant in the present case of the assessee. We therefore reverse the order of CIT(A) and restore that of AO - Appeal filed by the revenue is allowed.

Summary

Issues:
Revenue's appeal against the order of ld. CIT(A)-IV, Bangalore dated 04.03.2015 for Assessment Year 2010-11.

Analysis:
1. The revenue raised grounds challenging the CIT(A)'s order, arguing that the payment made to the owner's sister was not established to be for the purpose of business. They contended that the Joint Development Agreement (JDA) stipulated that the owner would bear the expenditure to keep the title clear and make the land usable for development until the developer's share is transferred. The revenue also highlighted the lack of evidence to prove the onus of curing the defective title was shifted to the assessee during assessment proceedings.

2. The revenue supported the assessment order, emphasizing that the JDA specified the owner's responsibility for land development expenses. They pointed out that the amount in question was transferred to expenses without a valid basis from the money paid to Shri Ramesh. The revenue argued that the payment was not necessary for business exigency.

3. The assessee, supported by the CIT(A), argued that payments to third parties for business purposes should be considered as business expenses under Section 37 of the IT Act. They cited various judicial pronouncements to support their contention. The assessee claimed that the payment to Shri Ramesh was to settle a dispute with his sister for smooth property development, justifying it as a business exigency.

4. The ITAT analyzed the JDA clauses and found that Shri Ramesh was obligated to bear land development expenses according to the agreement. They concluded that the payment of ?65 lakhs was not due to business exigency as Shri Ramesh was responsible for resolving disputes at his own cost, not the assessee. The ITAT rejected the relevance of the judgments cited by the assessee, as the payment was not shown to be necessary for the business.

5. Ultimately, the ITAT held that the CIT(A)'s order was unsustainable as the JDA clauses were not considered. They found that the payment was not borne out of business exigency and reversed the CIT(A)'s decision, restoring that of the Assessing Officer. Consequently, the appeal filed by the revenue was allowed, and the order was pronounced in open court on the mentioned date.