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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI ASHWANI TANEJA
Date of hearing : 06-12-2016 Date of order : 11 -01-2017
O R D E R Per ASHWANI TANEJA, AM: These appeals pertain to same assessee involving identical issues. Therefore, we heard them together and disposing these appeals by this common order.
First, we shall tke up appeal for A.Y.2010-11 filed against the order of Commissioner of Income-tax-18, Mumbai [hereinafter called CIT(A)] dated
“1. Disallowance of displacement compensation u/s-40(a)(ia):
1.1. The Learned Commissioner of Income tax (Appeals) ('the Ld. CIT(A) erred in confirming the Learned Assessing Officer's ('Ld. AO') reduction of Work-in-Progress (WIP) by withdrawing/disallowing compensation of Rs.65,86,800/- paid to the members of society under re-development, which was paid for the alternate accommodation of the members, during the year under consideration, for non-deduction of tax under u/s. 194-1 without considering the facts and legal provision that there don't exist any Landlord- Tenant or Lesser-Lessee relationship for tax required to be deducted on the payment of compensation to such Members. 1.2. The Ld. CIT(A) erred in not considering nor discussing the submission made before him that amount paid to society members is considered as displacement charge and taxed under the head Income from Other Sources, relying on the decision of Shri Jatinder Kumar Madan Vs ITO ITA No.: 69211Muml2010 AY 2006-07, dated 25.4.2012, wherein the displacement charges are taxed as income from other sources and not rent under the income from house property. 1.3. The Ld. CIT(A) erred in disallowing the above amount under section 40(a)(ia) of the Act without considering nor discussing on the facts and legal provision of said Act that the Appellant has "paid" the amount during the year under consideration and is not "payable" at the end of the year, relying on the decision of CIT Vs. Vector Shipping Services(P) Ltd. CC No(s). 806812014 for which SLA was dismissed by Supreme Court.
2. Addition on account of difference in balances of Creditors/purchasers: 2.1. On the facts of the case and in law, the Ld. CIT(A) erred in confirming the Ld AO's addition of Rs.132,593/- on account of differences in closing balances of the Appellant and Closing 3 & 6088/Mum/2014 balance of creditors without considering the facts and submission that the outstanding creditors balance were higher than amount shown in the books of Appellant. 2.2. On the facts of the case and in law, the Ld. CIT(A) erred in confirming the Ld AO's addition of Rs. 305,870 made between the differences in closing balance of Rs. 2,547,880 of the Appellant and closing balance of Rs. 305,870 of Ms. Rakhi Sawant, one of the buyer of property sold by the Appellant.
Addition on account of difference in Total Sale Price as per Agreement/AIR and Advances received till the end of the relevant year: 3.1. The Ld. CIT(A) erred in upholding the Ld. AO's additions of Rs. 13,34,452/- on account of differences between the amount received as Advances from Customers till the end of the relevant year and total sale price as shown in the Sale Agreement, without considering the fact that the projects were under construction and not completed till the end of the relevant year under Appeal. This addition has no relevance, as the Profit is worked out on the basis of the Percentage Completion Method based on Work-in-progress (WIP) duly followed by the Appellant consistently over the previous years and accepted by the revenue. 3.2 The Ld. CIT(A) erred in making additions of Rs. 2,81,4191- on account of differences in amount received as Advances from Customers and the amount shown in AIR data, on the basis of the remark of the learned AO in the Remand Report, without considering the fact that Appellant has not received entire amount as per Sale Agreement due to under construction of projects, which was not completed till the end of the relevant year under Appeal. This addition has no relevance, as the Profit is worked out on the basis of the Percentage Completion Method based on Work-in-progress (WIP) duly followed by the Appellant consistently over the previous years and accepted by the revenue.” In Ground No 1, the assessee is aggrieved by the action of lower 3. authorities in reducing amount of Work-in-Progress by disallowing
4 & 6088/Mum/2014 amount of compensation of Rs.65,86,800 paid to the members of the society under redevelopment, for the purpose of arranging alternative accommodation of the members during the year under consideration on the ground that the assessee failed to deduct tax at source u/s 194I of the Act.
During the course of hearing, Ld. Counsel stated that the issue is covered in favour of the assessee on the basis of recent decision of co- ordinate bench of the Tribunal in the case of Sahana Dwellers Pvt Ltd vs Income Tax Officer (ITA No. 5963/Mum/2013 dated 24-02-2016 wherein, in the identical circumstances, it was held that TDS was not required to be deducted u/s 194I of the Act.
Per contra, the Ld. DR relied upon the orders of the lower authorities.
We have gone through the orders passed by the lower authorities as well as the order relied upon by the Ld. Counsel before us.
The brief background is that it was noted by the AO that assessee had paid compensation of Rs.65,86,000/- during the year whereupon TDS provisions were attracted u/s 194I and since assessee failed to deduct TDS, the amount of expenses was disallowed u/s 40(a)(ia). In appeal before Ld.CIT(A), it was submitted in detail by the assessee that compensation was paid for the use of another building or premises and there was no relationship of lessor and lessee between the assessee and the members of the society, therefore, provisions of section 194I were not applicable. However, submissions of the assessee were rejected on the ground that compensation paid for the use of the building / premises /
5 & 6088/Mum/2014 place of the members for construction activities was in the nature of rent. It was observed by the Ld. CIT(A) that this amount was paid as rent for alternative accommodation, therefore, merely because it has been called as compensation, it would not be out of the provisions of section 194I of the Act. Thus, the claim of the assessee was rejected. In the appeal before us, Ld. Counsel has heavily relied upon the judgement of the Tribunal in the case of Sahana Dwellers Pvt Ltd (supra).
We have gone through the said judgement and find that identical issue has been decided by the Tribunal in favour of the assessee by holding that the impugned payment was not in the nature of rent, and therefore, provisions of section 194-I were not applicable and, hence no disallowance could have been made u/s 40(a)(ia). Relevant part of observations of the Tribunal is reproduced hereunder:-
“We have considered the submissions of the parties and perused the material available on record. Undisputedly, the property in question where the tenants were staying earlier was owned by the Brihan Mumbai Mahanagar Palika and the tenants were paying rent to the Municipal Corporation. It is also a fact on record that the subject building having become old and in a dilapidated condition the authorities concerned decided to demolish the said building and construct a new building in its place under the SRA Project and the construction of the new building was entrusted to the assessee. It is also a fact that since the entire building had to be demolished for the purpose of constructing the new building, the tenants had to vacate the said premise and alternative accommodation was required to be provided to them. On a perusal of the agreement entered into between the assessee and the society formed by the tenants, it is relevant to note that since the assessee was not able to provide alternative accommodation to the tenants, it was provided under the agreement that assessee would pay them compensation towards expenditure to be incurred by them on 6 & 6088/Mum/2014 account of rent payable by them for alternative accommodation and in accordance with such terms assessee initially paid compensation of Rs. 5,000 per month to each tenant which was subsequently revised from time-to-time as the assessee could not construct the building within the stipulated time period for various reasons. From the aforesaid facts, it is very clear that the concerned persons to whom the assessee had made the payment are neither tenants of the assessee nor the assessee has in reality paid rent on behalf of them. Only because the assessee was not able to provide alternative accommodation to these tenants the assessee had to pay compensation for enabling the tenants to meet the expenditure to be incurred by them towards rent payable whether they are actually paying rent or not. This is for the simple reason that tenants were displaced from the property where they were staying for construction of new building. On a perusal of section 1941 of the Act, it is seen that under clause (i) rent has been defined as under:- "Explanation. -For the purposes of this section,- (i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;”
7 & 6088/Mum/2014 7. On a plain reading of the aforesaid definition of rent, it becomes clear that the payment made by the assessee does not come within the purview of rent as prescribed in the said provision as the assessee is not making such payment for use of any land, building, etc. On the contrary, if the facts involved are considered as a whole the payment made by the assessee is nothing else but in the nature of compensation. The Tribunal in case of Jitendra Kumar Madan (supra) while considering the nature of payment received for alternative accommodation by the recipients held such payments at their hand as income from other sources instead of income from house property. That being the case, the payment made by the assessee also being in the nature of compensation for alternative accommodation cannot be treated (i.e; rent. Moreover, such compensation cannot be treated as rent for the simple reason that not only the assessee is not using any land and building but it may also be a fact that persons to whom such payment have been made may not be incurring any expenditure on account of rent. In any case of the matter, payments made by assessee under no circumstances can be construed to be coming within the, meaning of "Rent" as provided under section 194I. Thus, after considering the totality of the facts and circumstances of the case, we are of the considered opinion that compensation paid by the assessee to the tenants towards alternative accommodation not being in the nature of rent as defined in section 194I, there is no requirement for deduction of tax under the said provisions. Therefore, the disallowance made under section 40(a)(ia) of the Act cannot be sustained , Consequently, we delete the addition made on that account. Grounds raised by the assessee are allowed .” In the facts of the case before us also, the assessee has merely paid compensation to the members of the society. It is for them to utilise this amount for payment of rent or otherwise. Even if it has been paid as rent, the contract of rent/lease would be between the members and their respective landlords from whom these members would take premises (alternative accommodation) on rent/lease, and then the amount payable by these members to their respective landlords may be liable for 8 & 6088/Mum/2014 deduction of TDS u/s 194-I, if applicable upon them. As far as assessee is concerned, there was no transaction, much less, transaction of rent between the assessee and the new landlords of members of the society. Therefore, it would be highly unjustified to treat this amount as payment of rent and to make it liable for deduction of tax at source u/s 194-I. Under these circumstances, invoking of provisions of section 40(a)(ia) is unjustified. Thus, the disallowance made by the lower authorities is illegal and therefore, directed to be deleted. Ground 1 is allowed.
Ground 2.1 was not pressed by the Ld. Counsel, therefore, it is dismissed.
Ground 2.2 : In this ground, the assessee is aggrieved with the action of lower authorities in making addition of Rs.3,05,870/- on account of difference in closing balance of Rs.25,47,880 of the assessee and closing balance of Rs.3,05,870 of Ms. Rakhi Sawant, one of the buyers of the property sold by the assessee.
During the course of hearing it was stated by the Ld. Counsel that in the case of all other customers, the balances were duly reconciled. In the case of Ms Rakhi Sawant though confirmation was available, but the same was not signed, so the same was not accepted by the lower authorities. If an opportunity is given, the proper confirmation can be brought on record and the alleged difference can be reconciled and duly explained before the lower authorities.
Per contra, the Ld. DR did not have any objection on that.
We have gone through the facts of the case. It is noted that a confirmation has been placed by the assessee on record on behalf of Ms.
9 & 6088/Mum/2014 Rakhi Sawant which is claimed to be signed by one, Shri Dewal Modi. On our enquiry, it was replied by Ld. Counsel that Shri Dewal Modi, happened to be the accountant of Ms. Rakhi Sawant. But nothing was brought on record to support the said claim. However, he requested for giving one more opportunity to bring proper documentary evidence on record. In our considered view also, this issue should go back to the file of the AO. The assessee should place on record confirmation signed by the customer only, i.e. Ms. Rakhi Sawant. If it is signed by some other person, then it has to be established that the said person is duly authorised to sign confirmation on behalf of Ms. Rakhi Sawant. The assessee shall extend requisite cooperation to the AO in making verification directly with the customer in case it is so asked by the AO. The AO is also at his liberty to exercise his powers under the law to make direct verification from the said customer i.e. Ms. Rakhi Sawant. The AO shall decide this issue afresh after taking into account all documentary evidences brought on record by the assessee on objective basis. With these directions, this issue is sent back to the file of the AO and, therefore, this ground may be treated as allowed, for statistical purposes.
Grounds 3.1 and 3.2: In these grounds, the assessee has challenged the action of lower authorities in making addition on account of difference between the amount received as advance from customers till the end of the year and total sale price as shown in the sale agreement.
It was jointly stated by both the sides that these grounds may be sent back to the file of the AO since proper adjudication could not be done for want of proper evidences at his level and also for the reason that in subsequent years these amounts representing difference have been
We have gone through the entire facts and circumstances of the case and find force in the arguments made before us. Therefore, we send these grounds back to the file of the AO, who shall take into account the details and evidences as may be brought on record by the assessee and also the fact that whether these amounts have been brought to tax in subsequent years. If it is found that the impugned amounts have been brought to tax in subsequent years, then no addition is required to be made in the year before us. Further, if these differences are properly explained and it is established by the assessee that the impugned difference is not giving rise to any taxable as income in the year before us, then also no addition should be made. With these directions, these grounds are sent back to the file of the AO and may be treated as allowed, for statistical purposes.
Now we shall take up the appeal for A.Y.2011-12. This appeal has been filed against the order of Commissioner of Income-tax-18, Mumbai [hereinafter called CIT(A)] dated 24-07-2014 passed against the assessment order of the AO u/s 143(3) dated 26-02-2013 for A.Y.2011-12 on the following grounds:- “1. Disallowance of displacement compensation u/s-40(a)(ia):
1.1. The Learned Commissioner of Income tax (Appeals) ('the Ld. CIT(A)') erred in confirming the Learned Assessing Officer's ('Ld. AO') reduction of Work-in-Progress (,WIP') by withdrawing/disallowing compensation of Rs. 265,000/- paid to the members of society under re-development, which was paid for the alternate accommodation of the members, during the year under consideration, for non-deduction of tax under u/s. 11 & 6088/Mum/2014 194-1 without considering the facts and legal provision that there don't exist any Landlord-Tenant or Lesser-Lessee relationship for tax required to be deducted on the payment of compensation to such Members. 1.2. The Ld. CIT(A) erred in not considering nor discussing the submission made before him that amount paid to society members is considered as displacement charge and taxed under the head Income from Other Sources, relying on the decision of Shri Jatinder Kumar Madan Vs ITO ITA No.: 69211Muml 2010 AY 2006-07, dated 25.4.2012, wherein the displacement charges are taxed as income from other sources and not rent under the income from house property. 1.3. The Ld. CIT(A) erred in disallowing the above amount under section 40(a)(ia) of the Act without considering nor discussing on the facts and legal provision of said Act that the Appellant has "paid" the amount during the year under consideration and is not "payable" at the end of the year, relying on the decision of M/s CIT Vs. Vector Shipping Services(P) Ltd. CC No(s) . 8068/2014 for which SLA was dismissed by Supreme Court.
2. Addition on account of difference in Total Sale Price as per Agreement/AIR and Advances received till the end of the relevant year: The Ld. CIT(A) erred in upholding the Ld. AO's additions of Rs. 428,480/- on account of differences between the amount received as Advances from Customers till the end of the relevant year and total sale price as shown in the Sale Agreement, without considering the fact that the projects were under construction and not completed till the end of the relevant year under Appeal. This addition has no relevance, as the Profit is worked out on the basis of the Percentage Completion Method based on Work-in-progress (WIP) duly followed by the Appellant consistently over the previous years and accepted by the revenue.”
Ground 1 is identical to ground 1 of A.Y.2010-11 and, therefore, it may be treated as allowed in line with our order for A.Y. 2010-11.
12 & 6088/Mum/2014 19. Ground 2 is identical to ground 3 of A.Y.2010-11 and is sent back to the file of AO with identical directions and may be treated as allowed for statistical purposes.
As a result, both the appeals are partly allowed.
Order pronounced in the court on this _11th day of January, 2017.