ANIRUDDHA BOSE,J. - (1.) This appeal of the Revenue originates from an order of scrutiny assessment made for the assessment year 2006-07 adding to the business income of the assessee a sum of Rs. 5,17,48,439/-. The assessee had sold land measuring '129 kanal 17 Maria' situated in Faridabad, Haryana to another incorporated company for a consideration of Rs. 12,98,50,000/- in the relevant previous year. As it appears from the assessment order, the said land was purchased in the financial year under consideration for Rs. 6,08,52,081/-. The assessee claimed as expenditure the said sum of Rs. 5,17,48,439/-, which was paid to another corporate entity, Alishan Estates Pvt. Ltd. as compensation in connection with the subject land transaction. The assessee's stand is that the said sum was paid in performance of its obligation under a Memorandum of Understanding (MOU) executed on 10th July, with Alishan. The assessing officer found Alishan to be a "paper/jama kharchi" company, which was used by the assessee to reduce its profits. The copy of the Memorandum of Understanding was made available to the Commissioner of Income Tax (Appeals), and has been produced before us as well. The assessee's position is that payment to Alishan was legitimate consideration for certain services rendered by Alishan in pursuance of the (MOU). The services which Alishan was to undertake included identifying the buyer and also carrying out various other tasks relating to sale of the property involved. The assessing officer had directed addition of the entire sum to the assessee's income chargeable to income tax as the assessee had not deducted TDS in respect of such payment, invoking the provisions of section 40(a)(ia) of the Income Tax Act, 1961. The MOU between Alishan and the assessee, inter alia, contained the following clause:- "That alishan shall be entitled to claim share in the profit on sale of Land realizes by ECPL in the ratio of 75% of Alishan and 25% to ECPL"
(2.) The assessing officer disallowed this expenditure of Rs. 5,17,48,439/- in relation to the said transaction on compensation payment to Alishan, inter alia, holding:- "Thus, discussion at para 2 and 3 show that expenditure claim of Rs. 5,17,48,439/- is allowable for two distinct reasons - firstly under section 40(a)(ia) of Act; secondly the transaction being a 'sham transaction'."
(3.) The assessee went up in appeal before the Commissioner of Income Tax. The assessee had defended the transaction before the assessing officer as genuine transaction. On the question of invoking the provisions of section 40(a)(ia) of the Act, the assessee's contention was that it was sharing of profit in a joint venture. Assessee's position is that sharing of profit with joint venture partner does attract TDS provisions. The Commissioner, in his order, observed and held:- "Besides, the AO himself says that M/s. Alishan Estates Pvt. is showing this amount as income. In fact, his contention is that the appellant is making a false claim as because, M/s. Alishan Estates Pvt. Ltd. has accounted for this amount at all. The AO has in fact stated that the books of M/s. Alishan Estates Pvt. Ltd. are duly audited and it is impossible that the alleged accrued income has been reflected. It is to be mentioned that the paper book submitted by the appellant which was forwarded to the AO contained an affidavit by one Pramod Sharma acting on behalf of M/s.Alishan Estates Pvt. Ltd., attesting to the receipt of this amount as compensation. Further Page-8 of the said paper book identified the said person as a director of M/s.Alishan Estates Pvt. Ltd. No comments in any of the remand reports are seen to be forthcoming from the AO on this. In the absence of any adverse view on this evidence, it is difficult to justify the AO's assertion that the appellant is making a false claim.";