Tribunal upholds CIT (A) decision on land cost additions, rules payments not subject to tax.

The Tribunal upheld the CIT (A)'s decision to delete the additions of ? 8,10,29,645/- made by the Assessing Officer. The payments to M/s. SBPL were deemed genuine and for relinquishing rights in the land, forming part of the land's cost. The Tribunal also ruled that the payments were not subject to tax deduction at source under section 194H as they were not in the nature of commission or brokerage. Consequently, the Revenue's appeal was dismissed, and the order was pronounced on 22nd February 2022.

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Issues Involved:
1. Deletion of addition of Rs. 8,10,29,645/- on account of payments made to M/s. SBPL by the assessee company.
2. Deletion of addition of Rs. 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 Rs. 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 Rs. 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 Rs. 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 Rs. 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.

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