2022 (2) TMI 1142 - AT - Income Tax

Payment towards interest in land - assessee had treated the same as a part of the cost of land - whether said payment was not the part of the cost of the land and was outside the purview of section 37(1) - CIT-A deleted the addition - HELD THAT - It is an undisputed fact that during the FY 2007-08, the assessee had requirement to purchase contiguous piece of land for its housing project and has entered into memorandum of understanding/ agreement with SBPL to provide contiguous piece of land which in turn it was to be acquired from various farmers and land owners - MOU entered on 17.04.2007 clearly shows that there was an arrangement/understanding between the SBPL and the land owners and SBPL was paid for assigning/relinquishing/transferring all its present and future rights in the land to be registered in the name of the assessee. Most important fact was that, all these payments were made in the FY 2007-08. Now, in the AY 2013-14, AO held that the MoU and the payments made in the FY 2007-08 cannot be allowed. In other words, the expenditure incurred in AY 2008-09 was disallowed in AY 2013-14 and that to be u/s 37(1) of the Act. On this ground alone, we do not find any basis or the reason as to how the payments and the cost with regard to FY 2007-08 (AY 2008-09) is disallowable in AY 2013-14. The terms of Agreement and MoU entered into between the assessee and SBPL and the conduct of the parties and the transactions undertaken with the land owners clearly show that there was clear cut understanding and arrangement between the assessee, SBPL and the land owners and the same cannot be termed as self-serving document as held by the Assessing Officer, because such an agreement has duly acted upon - agreement reveals that SBPL has got the land transferred directly in favour of the assessee and it is provided that SBPL was paid consideration for assigning, relinquishing and transferring all its present and future rights in the said land. All these documents and the conduct that the payment made to SBPL, cannot be held to be a make-believe arrangement and such payment cannot be disallowed. Accordingly, the order of the ld. CIT (A) deleting the said disallowance is upheld. TDS u/s 194H - Disallowance on protective basis u/s 40(a)(ia) - commission or brokerage paid by the assessee company - CIT-A deleted the addition - HELD THAT - Addition is baseless because payments made to the consolidators of land have been made for the purpose of renouncing right/interest in the land and thus the assessee and the consolidator are transacting on principal to principal basis and cannot be regarded as commission or brokerage. Therefore, the assessee cannot be held to be liable to deduct tax at source in terms of section 194H of the Act as certainly its not in the nature of any commission or brokerage. Accordingly, the ld. CIT (A) deleting the said disallowance is upheld. Revenue appeal dismissed.

Summary

Issues Involved:
1. Deletion of addition of ? 8,10,29,645/- on account of payments made to M/s. SBPL by the assessee company.
2. Deletion of addition of ? 8,10,29,645/- made on a protective basis under section 40a(ia) for non-deduction of tax at source under section 194H.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ? 8,10,29,645/- on Account of Payments Made to M/s. SBPL:

The Revenue challenged the CIT (A)'s decision to delete the addition of ? 8,10,29,645/- made by the Assessing Officer (AO). The AO had disallowed this amount, arguing that it was not part of the cost of the land and thus not allowable under section 37(1) of the Income Tax Act, 1961. The AO's reasoning was based on the belief that the payment to SBPL was a self-serving statement and not for business purposes. The AO also doubted the arrangement between the assessee and SBPL, suggesting that the agreement was fabricated to inflate the cost of the land.

The CIT (A) considered the entire gamut of facts, additional evidences, and the AO's remand report. The CIT (A) observed that SBPL had an arrangement with the landowners, which was prior to the agreement with the assessee. The CIT (A) noted that SBPL had made initial payments to reserve its rights in the land, which were later reimbursed by the assessee. The CIT (A) concluded that the payment to SBPL was for relinquishing its rights in the land and formed part of the cost of the land. The CIT (A) allowed the payment and deleted the disallowance, stating that the payment was made to buy all vested interests in the land, including existing rights under agreements to sell executed by landowners.

The Tribunal upheld the CIT (A)'s decision, noting that the arrangement between the assessee, SBPL, and the landowners was genuine and acted upon. The Tribunal found no basis for the AO's disallowance in AY 2013-14 for payments made in FY 2007-08. The Tribunal agreed that the payment to SBPL was for relinquishing rights in the land and was not a make-believe arrangement.

2. Deletion of Addition of ? 8,10,29,645/- on a Protective Basis under Section 40a(ia) for Non-Deduction of Tax at Source under Section 194H:

The AO had alternatively disallowed the payment of ? 8,10,29,645/- on a protective basis under section 40a(ia) for non-deduction of tax at source under section 194H. The AO considered the payment as commission or brokerage, which required TDS deduction.

The CIT (A) disagreed with the AO, stating that the payment was not in the nature of commission or brokerage but was for relinquishing rights in the land. The CIT (A) held that the transaction was on a principal-to-principal basis and did not attract TDS under section 194H.

The Tribunal upheld the CIT (A)'s decision, agreeing that the payment was for renouncing rights in the land and not commission or brokerage. Consequently, the assessee was not liable to deduct tax at source under section 194H.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s deletion of the disallowances. The Tribunal found that the payments made to SBPL were genuine and for relinquishing rights in the land, forming part of the cost of the land. The Tribunal also agreed that the payments were not in the nature of commission or brokerage, and thus, no TDS was required under section 194H. The order was pronounced on 22nd February 2022.