Revenue's appeal allowed by ITAT regarding payment to owner's sister not for business purpose.

The Assistant Commissioner of Income-tax, Circle -4 (1) (2), Bangalore Versus M/s. Maya Ventures Pvt. Ltd.

The Assistant Commissioner of Income-tax, Circle -4 (1) (2), Bangalore Versus M/s. Maya Ventures Pvt. Ltd. - TMI 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 Rs. 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.