2017 (11) TMI 123 - HC - Income Tax

TDS on sharing of profit with joint venture partner - addition u/s 40(a)(ia) - sham transaction - Held that - Upon analyzing the Memorandum and other materials on record, the Commissioner accepted the assessee s stand that the said sum was not expenditure incurred by the assessee to attract the provisions of Sections 194H or 194J of the 1961 Act. As a consequence, the question of disallowance of payment by applying the provisions of Section 40(a) (ia) could not arise. These findings by the Commissioner are based on appreciation of materials on record. The Tribunal also concurred with the findings of the Commissioner. The Tribunal, in its decision under appeal, observed that the assessing officer did not point out any defect in the settlement/contract . There is no cloud on remittance of the said sum to Alishan, which has been referred to as a paper company by the assessing officer. But the Revenue has not been able to establish any defect or fault in the transaction itself between the assessee and Alishan. The transaction of purchase and sale of the land by the assessee pursuant to the MOU is not in dispute. Doubt has been sought to be raised on lopsided profit sharing arrangement, which according to the Revenue, is a colourable device adopted for evading tax. But as we have already observed, the first and the second appellate bodies, upon appreciation of evidence did not find any reason to negate the transaction as sham, which would have rendered assessee s explanation unsatisfactory. We do not find any perversity in the findings of the Commissioner or the Tribunal - Decided against revenue

Summary

Issues involved:
1. Disallowance of expenditure under section 40(a)(ia) of the Income Tax Act, 1961.
2. Determination of the genuineness of the transaction between the assessee and Alishan Estates Pvt. Ltd.

Analysis:
1. The appeal originated from a scrutiny assessment adding a sum to the business income of the assessee for the assessment year 2006-07. The assessing officer disallowed the expenditure of ?5,17,48,439 in relation to a land transaction compensation payment to Alishan Estates Pvt. Ltd. The assessing officer invoked section 40(a)(ia) of the Income Tax Act, 1961, for non-deduction of TDS. The Commissioner of Income Tax (Appeals) observed that the assessing officer's contention of false claim by the appellant was not supported by evidence, as Alishan had acknowledged receiving the compensation amount. The Tribunal upheld the Commissioner's decision, emphasizing that the transaction was genuine and in accordance with a joint venture agreement. The Tribunal found no basis for the disallowance made by the assessing officer under section 40(a)(ia).

2. The assessing officer's conclusion that the transaction was a sham was based on the inability to serve notice to Alishan and locate its directors. However, the Commissioner disagreed, accepting the specialized services rendered by Alishan as per the Memorandum of Understanding. The Commissioner found that the payment was not an expenditure attracting TDS provisions. The Tribunal concurred with the Commissioner's findings, noting that the assessing officer failed to point out any defects in the agreement between the parties. The Revenue's argument that the transaction was a sham to evade tax was dismissed by the appellate authorities, as they found no fault in the transaction itself. The genuineness of the transaction was upheld based on the evidence and materials on record.

3. The Revenue contended that the explanation for the payment to Alishan was unsatisfactory due to Alishan being labeled a paper company. However, the appellate authorities found no fault in the transaction, leading to the dismissal of the Revenue's appeal. The profit-sharing arrangement, though questioned by the Revenue, was deemed valid by the Commissioner and the Tribunal. The absence of any substantial question of law in the appeal led to the dismissal of the appeal, with no costs awarded.

In conclusion, the judgment revolved around the disallowance of expenditure under section 40(a)(ia) of the Income Tax Act and the genuineness of the transaction between the assessee and Alishan Estates Pvt. Ltd. The appellate authorities upheld the transaction's validity, emphasizing the joint venture agreement and the absence of evidence to support the Revenue's claims of a sham transaction.