Gulf Oil Corporation Ltd vs. The Assistant Commissioner of Income Tax

The appellant/assessee is a Company engaged in the manufacture of detonators, industrial explosives {,r its accessories, and also engaged in the activity of floriculture, padding and ma,ufacture of g4psum walls, panels ald sealing boards and also engaged in the execution of contracts for drillirLg, blasting and excavation; that for the assessment year 2OO4_OS, the appellant/assessee filed returns on the turnover of 2 Rs.13,72,47,281 /-; ard that the assessing authority accepted the returns of the appellant/ assessee, however, disallowed certain expenditure under Section 143(1) of Income Tax Act, 1961 (for short 'the IT Act')

Aggrieved by the said order of the Assessing Authority, the appellant/assessee has filed an appeal before the Commissioner of Income Tax(Appeals)-Ill, Hyderabad, (for short 'the CIT(A)); that a-fter elaborate hearing ard appreciation of facts, the CIT(A) uide order, dt.09.06.2008, has partly allowed the said claim of the appellant/assessee, while disallowing the expenditure of Rs.61,00,000/- towards commission alleged to have been paid to M/s Aasia Management & Consultancy (P) Ltd(for short AMC'); that the CIT(A) has also disallowed arl amount of Rs.69,00,000/- alleged to have been paid to M/s Udhayaman Investments (P) Ltd., for termination of agreement under Section a8(i) of the Act

The order passed by the CIT(A) 1n disallowing the said amounts under Section 48 of the Act, was challenged before the learned STAT uide ITA.No.l36alHyd/O8; that the learned STAT, after appreciation of facts on record has confirmed the orders

Whether on the facts and in the circumstances rtf the case, the finding of the Tribunai that the payment of Rs.69 lakhs is not connected with the transfer of property at Bangalore can be said to be erroneous, unleasonabie, arbitrary, not based on facts on record or perverse?

Whether on the facts and in the circumstances of the case, the sum of Rs.61 lakhs paid by the appellar,t to Aasia Management & Consultancy (P) Ltd., towards commission for sale of property to Abhishek Developers, can be considered as expenditure incurred in connection with the transfer of property at Bangalore and can ber dgdu61.6

Whether on the facts ald in the circumstances of the case, the Tribunal is justified in rejecting the claim of the appellant for deduction of the sum of Rs.61 lakhs paid by ii as commission without considering the petition hled before it under Rule 29 ol fite Appellate Tribunal Rules for admission of additional evidence containing letters, dt.22.O7 .2OOg and dt'21'08.2009, issued by Aasia Management & Consultancy (P) Ltd., relating to the servicis rendered by it and payment of commission to it for the sale of property at Bangalore belonging to the appellant? The sum and substalce of the substantial questions of law to be answered would be ground No.l & 4 and we deal with the sarne as hereunder.

As regards l"t issue, it is contended by the learned counsel for the appeliant/assessee that the appellant/assessee had entered into a Memorandum of Understanding with M/s Udhayaman Investments (P) Ltd., for execution of development of land and due to changed circumstalces, as the said Memorandum of Understanding was not viable, an amount of Rs.69,00,000/- was paid. to M/s Udhayaman Investments (P) Ltd', as an improvement by way of account payee cheque, for termination of Memorandum of Understanding executed in J August, 2003, which facilitated for the execution of sa_le deed in favour of M/s Abhishek Developers 9 . It is further contended by the learned cr>unsel for the appellant/assessee that though the said arnoun: was paid by account payee cheque in favour of M/s Udhayaman Investments (P) Ltd., so as to facilitate the execution of sale deed in favour of M/s Abhishek Developers, both the learned ITAT and the CIT(A) have grossly erred in holding that the appellant/ assessee is not under 1egal obligation to pay the said amount to M/s Udhayaman Investments (P) Ltd, arrd that the cancellation agrer:ment does not bear the signature of the appellant/assessed; and that as the said amount was paid towards improvement, the same is liable to be allowed under Section 48(i) of the Act ald as such both said orders passed by the learned ITAT and the CIT(A) :rre contrar5r to law and liable to set aside.

As regards the 2"a issue of pa),rnent of Rs.61,00,000/- to AMC, it is contended by the appellalt/assesseo that as the amount of Rs.61,00,000/- was paid as commissiorr @ 2o/o on the sale consideration to AMC, the assessing Authority :rs well as both

In support of the above contentions, reliance was placed by the learned counsel for the appellant/assessee on the decision of the High Court of Delhi in the case of Kousalga Deul(d'eceased) through.L.Rs., us Commlssioner of Income Taxl, wherein the settlement amount paid towards compromise decree was directed to be allowed under Section a8(i) of the Act.

Per contra, the learned Speciat Government Pleader, appearing for respondents would submit that the ITAT along with CIT(A) have rightly held that the aruount of Rs.69,0O,0OO/- alleged to have been paid to M/s Udhayaman Investments (P) Ltd-, uide cancellation agreement, was executed in the month of August, t (2olal 4O4lTR 136 or 2018 SCC Online Del. 8515

Learned Specia-l Government pleader further <:ontended that both the appellate authorities, being the fact findi,g authorities, have concurrently held the said issue against the appellant/assessee and the appeal is liable to be disrrissed.

We have given earnest consideration to the srubmissions of the counsel appearing on either side and perused the record.

As seen from the record, the amount of Rs.69 0O,OO0/_ was paid to M/s Abhishek Deveropers uid.e cancellation Agreement in 8 the month of August, 2003, i.e., after the execution of the sale in the month of June, 2003, as such, the hnding of the STAT that pa)"rnent of said amount is an a-fterthought, appears to be gefinane and valid. Also, in the original Memorandum of Understanding, no condition was stipulated that the appellant/ assessee has to pay arry amount, if the contract is rescinded. In the absence of such a contractual obligation, the finding of the ITAT that the appellant/assessee was not under legal obligation to pay the said anount, is well founded. Thus, the finding of the ITAT that the assessing authority has rightly disallowed the said amount as expenditure under Section a8(i) of the Act, is tenable.

Insofar as the payment of Rs.61,00,000/- to AMC, as rightly held by the learned ITAT, the appellant/assessee has not placed any evidence to show that said company had rendered "ny services in facilitating the execution of sale deed in favour of M/s Abhishek Developers, and as such we hold that the learned ITAT has have rightly held that it was an afterthought to avoid tax and 9 no concrete evidence was placed to believe the version of the appellant/ assess.

In the aforesaid judgment, the assessee therern had paid al amount to other party as per the terms of the s,:ttlement in a compromise decree entered before the Civil Court. The Division Bench of the High Court of Delhi has observed that the fact of payment of amount towards settlement or even in p,urss*ra. ot. court decree, shall be treated as expenditure ancl directed the 10 authorities to a-llow the said expenditure under Section a8 (i) of the IT Act and in the instant case, the amounts alleged to be paid are doubtful and more so, no concrete evidence is placed to substantiate the said version, and as such the facts of the instant case are distinguishable with Kousalga Deul(deceased)'s case(supra).

In the view of the foregoing facts and circumstalces, the learned ITAT as well as the CIT(A), being the fact finding appellate authorities, have concurrently held against the appellant/assessee holding that the amounts claimed by them do not qualify AS expenditure under Section 48(i) of the Act, ald we are of the considered view that the appellant/asssessee has miserably failed to substantiate their claim and we are not inclined to interfere with the well-considered findings of the learned ITAT, and the appeal is liable to be rejected

Accordingly, the substantia-l questions of law are answered against the appellant/ assessee ald in favour of the respondent/Revenue.

The Under Secretary, Unron of lndia IVlinistry of Law, JLrstice and Company . Affairs. New Delhi To t

The Secretary, Telangana Advocates Association Library, High Court for the State of Telangana, High Court Buildings at Hyderabad

One CC to Sri. Y Ratnakar, Advocate [OPUC] One CC to Ms.J.Sunitha,Senior Standing Counsel for the lncome Tax Qgpartment [OPUC] M, Two CD Copies DL/PSL t)