2017 (12) TMI 247 - AT - Income Tax

Income payment to SIDCPL deemed application, not diversion. Tribunal upholds Revenue's appeal, rejects consistency principle.

The Tribunal upheld the Assessing Officer's decision that the payment to SIDCPL was an application of income and not a diversion by overriding title. It ... Non disclosure of profit from sale of land - parting of share of the profit in favour of SIDCPL - whether is only an application of income and not diversion of income by overriding title? - Held that:- There is only an application of income by virtue of subsequent agreement by assessee and there is no obligation or diversion by overriding title attached to the property, particularly in view of the fact that assessee has agreed only to share the profits but not the losses and this agreement was subsequently entered, which cannot be considered as an obligation on the source itself. In view of that, we set aside the order of CIT(A) and restore the order of AO for both the assessment years. - Decided in favour of revenue Issues Involved:1. Whether the amount paid to M/s. Sindya Infrastructure Development Company Private Limited (SIDCPL) constitutes a diversion of income by overriding title or an application of income.2. Consistency in the method of accounting and treatment of similar transactions in previous assessment years.Issue-wise Analysis:1. Diversion of Income by Overriding Title vs. Application of Income:- The assessee, engaged in real estate, filed returns for AY 2010-11 and AY 2009-10. The primary dispute arose from the assessee's claim that 87.12% of its gross receipts were not its income but belonged to SIDCPL due to an overriding title.- The Assessing Officer (AO) rejected this claim, treating the payment to SIDCPL as an application of income, not a diversion by overriding title. The AO brought the entire profit to tax in the hands of the assessee.- The CIT(A) granted relief to the assessee, accepting the principle of diversion of income by overriding title, observing that similar payments in previous years were allowed by the AO.- The Tribunal examined the facts, noting that the assessee received advances from SIDCPL and entered into an MOU on 22-03-2007 to share profits. However, the Tribunal found inconsistencies in the assessee's claims and the actual transactions, questioning the genuineness of the arrangement.- The Tribunal referred to the Supreme Court decision in CIT vs. Sitaldas Tirathdas (41 ITR 367), which distinguishes between diversion of income by overriding title and application of income. The Tribunal concluded that the obligation to share profits with SIDCPL was created by a subsequent agreement and did not constitute a diversion of income by overriding title.- The Tribunal held that the payment to SIDCPL was an appropriation of profits, not a diversion at the source, and upheld the AO's treatment of the payment as an application of income.2. Consistency in Accounting and Treatment of Transactions:- The CIT(A) had allowed the assessee's claim based on the principle of consistency, noting that similar transactions were treated similarly in previous years.- The Tribunal found that neither the assessee nor SIDCPL followed a consistent method of accounting or treatment of transactions. The Tribunal observed that the profits were not consistently shared in the initial years, and there were discrepancies in the financial records of both parties.- The Tribunal rejected the CIT(A)'s reliance on the principle of consistency, noting that the facts and claims were inconsistent and not verifiable.- The Tribunal emphasized that the principle of consistency could not be applied when the underlying facts and transactions were not consistent or genuine.Conclusion:The Tribunal set aside the order of the CIT(A) and restored the AO's order for both assessment years, concluding that the payment to SIDCPL was an application of income and not a diversion by overriding title. The Tribunal found significant inconsistencies in the assessee's claims and financial records, undermining the argument for consistency in accounting treatment. The appeals of the Revenue were allowed.