2018 (3) TMI 387 - HC - Income Tax

Disallowance of sum paid to director of the company - only reason for disallowance was that in the previous year they have not made any such claim - Held that - Upon examination of the entire record and the CIT s order as well as the Tribunal s order, it appears that she was doing the work of promotion for selling flats and for this purpose she had been paid. The amount paid to her was named as liaisoning fee . Each year stands on its own footing and showed the expenditure and income. The amount which was earned by the Director Asha Peterson was disclosed and declared by her in her income tax return and was paid tax on it. The Tribunal also recorded a finding of fact that the business of the assessee was of selling flats and flats had been booked in that year and had been sold and her services had been used for selling of those flats. In view of the finding of the fact recorded by the Tribunal it cannot be said that any part of provision of Section 37(1) were contravened. We, therefore, upheld the finding and reasoning adopted by the Tribunal. - Decided in favour of assessee

Summary

Issues:
1. Whether the ITAT was legally correct in confirming the deletion of the addition of ?12,00,000 under the head 'liaison fee' despite lack of substantiation?
2. Whether the ITAT was legally correct in allowing the claim of deduction under section 80IB(10) of the IT Act?
3. Whether a civil contractor in a housing project can be considered a developer and builder of the project?

Analysis:

1. The first issue pertains to the deletion of an addition of ?12,00,000 under the head 'liaison fee' by the ITAT. The Assessing Officer doubted the work done by the Director of the Company, to whom the sum was paid. However, upon review of the record, it was found that the Director was involved in promoting and selling flats, for which she was paid the amount termed as 'liaisoning fee'. The Tribunal found that the Director's services were utilized for selling flats, and the income earned was duly disclosed and taxed. Each year's financials stand independently, and the Tribunal's factual findings supported the legitimacy of the expense. Thus, the Tribunal's decision was upheld, ruling in favor of the assessee against the department.

2. The second issue revolves around the allowance of a deduction under section 80IB(10) of the IT Act by the ITAT. The question raised the satisfaction of conditions for the deduction post a retrospective amendment. However, the decision on this issue was deferred as it was covered by a separate judgment delivered on the same day, Income Tax Appeal No.125 of 2010.

3. The final issue concerns whether a civil contractor in a housing project can be equated with a developer and builder of the project. The facts indicated that the Company made a payment to an individual involved in promoting flat sales. The Tribunal's factual findings supported the payment being legitimate for the services rendered in selling flats. The Tribunal's decision was based on the specific facts of the case and was in line with the provisions of Section 37(1) of the IT Act. Consequently, the question was answered in favor of the assessee, leading to the dismissal of the appeal.

In conclusion, the judgment addressed the issues raised by the department against the ITAT's order for the assessment year 2004-05. The detailed analysis of each issue highlighted the factual findings supporting the decisions, ultimately resulting in the dismissal of the appeal in favor of the assessee.