2020 (2) TMI 81 - AT - Income Tax

Tribunal upholds CIT(A) order dismissing Revenue's appeal. Commercial expediency recognized in deletion of addition.

ACIT, Central Circle-7, New Delhi. Versus Vishnu Apartments Pvt. Ltd., Jaipur.

ACIT, Central Circle-7, New Delhi. Versus Vishnu Apartments Pvt. Ltd., Jaipur. - TMI Issues Involved:1. Legality of the CIT(A)'s order.2. Deletion of the addition of Rs. 47,07,37,143/- made by the AO on account of 'Sham Transaction of Revenue Sharing'.3. Validity and genuineness of the collaboration agreement between the assessee and MGF Development Ltd.4. Commercial expediency and reasonableness of the revenue sharing agreement.5. Application of provisions under section 40A(2)(a) and section 40(a)(ia) of the IT Act.Detailed Analysis:Issue 1: Legality of the CIT(A)'s OrderThe Revenue contended that the CIT(A)'s order was incorrect in law and facts. The CIT(A) deleted the addition of Rs. 47,07,37,143/- made by the AO, which was challenged by the Revenue. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the detailed reasoning provided by the CIT(A) against each allegation raised by the AO.Issue 2: Deletion of the Addition of Rs. 47,07,37,143/-The AO disallowed the amount of Rs. 47,07,37,143/- claimed under the revenue-sharing agreement, considering it a sham transaction. The AO allowed only Rs. 9,92,62,857/- (comprising interest and brand fee) and disallowed the balance. The CIT(A) deleted this addition, noting that the assessee was merely the landowner and the entire project was executed by MGF Development Ltd., making the revenue share reasonable. The Tribunal upheld this view, noting that the revenue received by MGFD was offered to tax and accepted in the assessment framed by the Revenue.Issue 3: Validity and Genuineness of the Collaboration AgreementThe AO questioned the genuineness of the collaboration agreement, stating it was an afterthought and never produced in original. The CIT(A) found that the agreement's existence or validity had no impact on the commercial expediency of the transaction, as MGFD provided significant contributions to the project. The Tribunal agreed, emphasizing that the AO had admitted the brand value and finance provided by MGFD.Issue 4: Commercial Expediency and Reasonableness of the Revenue Sharing AgreementThe AO argued that the revenue sharing was excessive and not backed by commercial expediency. The CIT(A) countered this by stating that business transactions are entered into on commercial considerations and the revenue cannot step into the shoes of the businessman. The Tribunal supported this view, citing various judicial precedents, including the Delhi High Court's decision in CIT vs. Dalmia Cement (Bharat) (P) Ltd. and the Supreme Court's decision in S.A. Builders Ltd. vs. CIT, which emphasized that the revenue cannot decide the reasonableness of expenditure from its own viewpoint but must consider the perspective of a prudent businessman.Issue 5: Application of Provisions under Section 40A(2)(a) and Section 40(a)(ia)The AO applied section 40A(2)(a), considering the transaction between related entities as excessive. The CIT(A) noted that the provision applies to expenditure, not revenue sharing. The AO also mentioned the non-deduction of TDS under section 40(a)(ia). The CIT(A) found no provision requiring TDS on revenue sharing in joint project development. The Tribunal upheld these findings, noting that the AO had already allowed interest and brand fee, recognizing the contributions of MGFD.ConclusionThe Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal found that the CIT(A) had provided a well-reasoned and detailed analysis, addressing each of the AO's objections comprehensively. The Tribunal emphasized that the revenue cannot interfere with the commercial decisions of a business and must consider the perspective of a prudent businessman. The deletion of the addition of Rs. 47,07,37,143/- was thus upheld, recognizing the commercial expediency and contributions of MGFD towards the project.