TaxTMI 
TaxTMI 
2015 (12) TMI 462
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....mpany was called upon to explain the following: i) During the financial year 2009-10 pertaining to assessment year 2010-11 the assesssee company had sold immovable property having 4 shops and 72 flats to M/s Silverline Enterprise on 7th July 2009. The records reveal that while the cost of construction is Rs. 12,054 per sq. meter, the selling price is Rs. 10,832.38 per sq. meter. ii) The creditworthiness of the purchaser M/s Silverline Enterprise is not verified by the Assessing Officer by analysis of bank account statements and ledger accounts of this party. 4. The assessee company replied before the CIT in proceedings u/s 263 of the Act as under: - There was a dispute between the assessee company and the developer. - The Developer was M/s Sarovar Developers (P) Ltd. - This was new venture for the assessee company and had no local contacts. - Property could not be sold at proper price. - The cost of project went up due to delay. It led to heavy interest burden. - In F.Y. 2009-10 the property market was very bad. - Hence they sold the whole property to one party. - Due to the fact that it was disputed property there was no proper realization. 5. T....
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.... were duly served but there are no evidence on record of compliances of these notices and hence, creditworthiness of M/s Silverline Enterprise was not examined by AO. Thus, the CIT held that the assessment order dated 01.03.2013 passed u/s 143(3) of the Act by the AO is considered erroneous and prejudicial to the interest of the Revenue and is set aside to the extent mentioned in the reasons given above for which the directions were issued to AO to examine these issue afresh and issue fresh assessment order. 6. Aggrieved by the orders dated 26th March 2015 passed by the CIT u/s 263 of the Act, the assessee company filed appeal before us. 7. The assessee company submitted before us that the assessee company has only one project at Gandhinagar, Gujarat and the assessee company purchased land from the M/s Sarovar Developers Pvt. Ltd. vide agreement dated 25-01-2008 for Rs. 1,16,49,300/- (inclusive of the registration charges and stamp duty). The assessee company submitted that it entered into development agreement with M/s Sarovar Developers Pvt. Ltd. for Rs. 6,75,60,000/- vide agreement dated 25-01- 2008. The assessee company submitted that the said M/s Sarovar Developers Pvt. ....
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....sment proceedings u/s 143(3) of the Act, there was discussions at length by the AO about this project which is the only one project undertaken by the assessee company and the Revenue has all the details about this project before it while framing original assessment order dated 01.03.2013 u/s 143(3) of the Act. The assessee company drew our attention to the para 2 & 3 of the assessment order u/s 143(3) of the Act dated 01-03-2013 which are reproduced below and reads as under wherein the project undertaken by the assessee company at Gandhinagar, Gujarat which is the sole project undertaken by the assessee company was dealt and discussed in detail by the AO: "2. The assessee company is engaged in the business of renting of immovable property and development of property. Disallowance of Rs. 75,00,000/- u/s. 40(a)(ia): 3.1 During the year the assessee has debited Rs. 75,00,OOO/ -under the head development charges. The assessee company had given its land at Chandkheda, District Gandhinagar, Gujarat for development to M/s.Sarovar Developers Pvt. Ltd. vide development agreement dtd. 25.1.2008. Sarovar developers Pvt. Ltd. had agreed to construct a building for th....
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....d for the Balance contractual payment of Rs. 70,00,000/- as per the said agreement. The total contract value was Rs. 6,75,60,000/-, out of which Rs. 6,05,60,000/- was paid by the assessee company and proper tax was deducted at source thereon and balance amount of Rs. 70,00,000/ became non payable due to the reason stated herein above. The amount of R.s 75,00,000/- which was paid by the buyer as mentioned in the sale deed is as per out of court settlement in-order to get sale deal through by withdrawing the suit filed by the developer. Further the payment of Rs. 75,00,000/- was a settlement amount which can further be confirmed from the cancellation deed which is already on your record and not a contractual payment. We are enclosing herewith the relevant part of the cancellation deed marked as Annexure-2. The said amount of Rs. 75,00,000/- was neither paid by the assessee company nor received by the assessee company from the buyer of the said property. The said amount was only accounted as expenses and added in the sale consideration following grass method of accounting as per the schedule VI of the Companies Act, 1956. In view of the above, it is....
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....t of this contract consideration is factually incorrect. Although the dispute arisen with the contractor was settled out of court the essence of payment is the original development contract for construction of building. As the assessee failed to pay the balance contractual consideration of Rs. 70 lacs to the contractor he filed suit for recovery of the same. To avoid the litigation assessee made out of court settlement and agreed to pay Rs. 75 lacs to the contractor towards development charges and interest on delayed payment. Thus the payment made by the assessee is pursuant to original contract dtd. 25-01-2008. Recovery suit acted as a catalyst to accelerate the process of payment of balance contractual consideration. Settlement deed was mere mutual agreement to ensure recovery of the outstanding contractual consideration from assessee and no further obstacle by contractor against sale of building. Hence it cannot be said that payment was made for out of court settlement and not towards construction. Once it is established that the payment has been made for construction work it attracts provisions of section 194C. 3.4 Moreover it is mentioned in the Settlement Agreement t....
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....count of the First Party paid Rs. 75,00,000/-[Rupees Seventy Five Lacs only] to the second party by Banker Cheque No. 702253 dated 19-5.2009, Bank of Baroda, Chankheda Branch, drawn in favour of the Second Party towards full and final payment of all their dues/outstanding including interest for delayed payment etc. under the said Development Agreement." b) Agreement dtd.7.7.2009 "Thereafter the confirming party (M/s. Sarovar Developers Pvt. Ltd) had filed suit No. 144/2009 before 5th Addl. Senior Civil Judge, Gandhinagar Against Vidyasagar Investments Pvt. Ltd., for recovering the balance development charges and as per the instruction of Vendor(Vidyasagar Investments Pvt. Ltd.) remaining development consideration was paid by the purchaser to the confirming party." 3.7 From the above it is clear that the payment of Rs. 75,00,000/ - has been made on behalf of the assessee as consideration for development charges i.e. for construction of building. For Silverline Enterprise payment of Rs. 75 lacs was purchase consideration. Whereas for the assessee it was consideration for development charges payable to M/s Sarovar Developers Pvt, Ltd attracting provisions of....
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....t made for development of property i.e. for construction of building. Even if Silverline Enterprises had paid to the assessee the amount of Rs. 75 lacs then also, the assessee was required to pay this amount to M/s. Sarovar Developers Pvt. Ltd as stipulated in agreement dtd.20.5.2009. Thus the assessee was under obligation to effect TDS u/s.194C on the said payment. 3.11 In view of the above facts and discussion it is established beyond doubt that the said expenditure of Rs. 75,00,000/ - has been incurred towards contract for construction of building.Such payments attract provisions of section 194C. The assessee has failed to deduct tax at source u/s.194C, on the said payment. Hence the expenditure of Rs. 75,00,000/-is hereby disallowed u/s. 40(a)(ia) of the Income Tax Act, 1961 and added back to the total income of the assessee. I am satisfied that this is a fit case for initiating penalty u/s 271(1)(c). Penalty proceedings u/s. 271(1)(c) of the Income Tax Act, 1961 are initiated for furnishing inaccurate particulars of Income." Thus, the assessee company submitted that the AO had before it all the relevant details about this project including cost of project, details ....
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....-2013 u/s 143(3) of the Act are neither erroneous nor prejudicial to the interest of revenue and the orders dated 26th March 2015 passed u/s 263 of the Act by CIT are bad in law and liable to be set aside 8. The Ld. DR on the other hand relied upon the orders dated 26th March 2015 u/s 263 of the Act of the CIT and submitted that the cost of construction of the project needs to be verified as held by the CIT in his orders dated 26th March 2015 u/s 263 of the Act. The Ld. DR relied upon decision of Hon'ble Supreme Court in Malabar Industrial Company Limited v. CIT (2000) 243 ITR 83(SC) and Mumbai Tribunal in Arvee International v. Addl. CIT (2006) 101 ITD 495(Mum.) and also upon the judgment of Hon'ble Karnatka High Court in CIT v. Infosys Technologies Limited (2012) 17 taxmann.com 203(Kar.) as well judgment of Hon'ble Allahabad High Court in Jagdsih Kumar Gulati v. CIT (2004) 139 Taxmann 369(All.) to contend that orders u/s 263 of the Act are proper and legal as the AO has not verified the cost of construction of the project and hence the assessment orders dated 01-03-2013 u/s 143(3) of the Act is erroneous and prejudicial to the interest of Revenue which has been rightly set asi....
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....h July 2009 with M/s. Silverline Enterprise while the developer M/s Sarovar Developers Pvt. Ltd. became the confirming party and balance payment was received from the said Buyer by the assessee company after adjusting the amount of Rs. 75,00,000/- paid by the Buyer directly to M/s Sarovar Developers Private Limited and in the process there was a loss of 90,02,711/- incurred by the assessee company in this project after taking into account extra ordinary expenses of interest and settlement amount, which loss was claimed as business loss by the assessee company in the return of income filed with Revenue. We have also observed that there are discussions in the order of assessment dated 1-3-2013 u/s 143(3) of the Act passed by AO whereby the details about this project are discussed by the AO. Reference to para 2 & 3 of the assessment order u/s 143(3) of the Act dated 01-03-2013 which are reproduced below establish that the details of this project were before AO in the original assessment proceedings u/s 143(3) of the Act while framing assessment order date 01-03-2013: "2. The assessee company is engaged in the business of renting of immovable property and development of proper....
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.... "Balance amount of Rs. 70,00,000/- (Rupees Seventy Lacs only) within 10 days from getting Building Use permission / Occupation Certificate from the concern authorities without any omission, delay or default for any reason". Since the Developer has not obtained the Business Use Permission (BUP)/ Occupation certificate (OC) from the concerned authorities within the stipulated time hence the Developer is not entitled for the Balance contractual payment of Rs. 70,00,000/- as per the said agreement. The total contract value was Rs. 6,75,60,000/-, out of which Rs. 6,05,60,000/- was paid by the assessee company and proper tax was deducted at source thereon and balance amount of Rs. 70,00,000/ became non payable due to the reason stated herein above. The amount of R.s 75,00,000/- which was paid by the buyer as mentioned in the sale deed is as per out of court settlement in-order to get sale deal through by withdrawing the suit filed by the developer. Further the payment of Rs. 75,00,000/- was a settlement amount which can further be confirmed from the cancellation deed which is already on your record and not a contractual payment. We are enclosing herewith the relevant p....
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....ated that it pertains to out of court settlement. This is not wholly correct. It is a fact that the assessee was required to pay Rs. 6,75,60,000/ -to the contractor for construction of building and such payment is covered under section 194C. In its letter dtd.1l.2.2013 the assessee has clearly stated that it has deducted tax at source on payment of Rs. 6,05,60,000/ -.Thus the contention that Rs. 75 lacs is not part of this contract consideration is factually incorrect. Although the dispute arisen with the contractor was settled out of court the essence of payment is the original development contract for construction of building. As the assessee failed to pay the balance contractual consideration of Rs. 70 lacs to the contractor he filed suit for recovery of the same. To avoid the litigation assessee made out of court settlement and agreed to pay Rs. 75 lacs to the contractor towards development charges and interest on delayed payment. Thus the payment made by the assessee is pursuant to original contract dtd. 25-01-2008. Recovery suit acted as a catalyst to accelerate the process of payment of balance contractual consideration. Settlement deed was mere mutual agreement to ensure re....
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....terprise paid Rs. 75,00,000/ - to M/s. Sarovar Developers Pvt. Ltd on behalf of and at the behest of assessee towards development charges. This is clearly mentioned in the agreement dated 20.05.2009, & 7.7.2009 relevant clauses of the two agreements are reproduced as under: a) Agreement dtd.20.5.2009: "Accordingly M/s. Silverline Enterprises has on specific instructions of, on behalf of and on account of the First Party paid Rs. 75,00,000/-[Rupees Seventy Five Lacs only] to the second party by Banker Cheque No. 702253 dated 19-5.2009, Bank of Baroda, Chankheda Branch, drawn in favour of the Second Party towards full and final payment of all their dues/outstanding including interest for delayed payment etc. under the said Development Agreement." b) Agreement dtd.7.7.2009 "Thereafter the confirming party (M/s. Sarovar Developers Pvt. Ltd) had filed suit No. 144/2009 before 5th Addl. Senior Civil Judge, Gandhinagar Against Vidyasagar Investments Pvt. Ltd., for recovering the balance development charges and as per the instruction of Vendor(Vidyasagar Investments Pvt. Ltd.) remaining development consideration was paid by the purchaser to the confirmin....
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....ideration of Rs. 6,75,60,000/ - assessee was responsible to effect TDS on such payment under section 194C. Although the payment of Rs. 75,00,000/- has been made by M/s. Silverline Enterprise the same has been made on behalf of the assessee under the development agreement. Hence payment made by Silver Line does not alter the nature of expenditure in the hands of the assessee. For the assessee it was payment made for development of property i.e. for construction of building. Even if Silverline Enterprises had paid to the assessee the amount of Rs. 75 lacs then also, the assessee was required to pay this amount to M/s. Sarovar Developers Pvt. Ltd as stipulated in agreement dtd.20.5.2009. Thus the assessee was under obligation to effect TDS u/s.194C on the said payment. 3.11 In view of the above facts and discussion it is established beyond doubt that the said expenditure of Rs. 75,00,000/ - has been incurred towards contract for construction of building.Such payments attract provisions of section 194C. The assessee has failed to deduct tax at source u/s.194C, on the said payment. Hence the expenditure of Rs. 75,00,000/-is hereby disallowed u/s. 40(a)(ia) of the Income Tax Act....