The Delhi High Court upheld the deletion of the addition of Rs 47.07 Crores on Share Revenue MGF Development as a part of the Project. The Tribunal deleted the addition as the contention of the appellant/revenue that the collaboration agreement represented a sham transaction was not established.
The appellant/revenue challenged the order passed by the Income Tax Appellate Tribunal [ITAT] which was in favour of the respondent, Vishnu Apartments Pvt. Ltd.
Mr Ruchir Bhatia, senior standing counsel, who appears on behalf of the appellant/revenue, stated that the only issue by which the appellant/revenue is aggrieved in the instant appeal concerns the deletion of an addition amounting to Rs.47.07 crores made by the Assessing Officer (AO).
The Commissioner of Income Tax (Appeals) [“CIT(A)”] via the order deleted the addition made by the AO. The order of the CIT(A) has been confirmed by the Tribunal. The root cause for the addition made by the AO is the collaboration agreement dated 06.09.2004 [“collaboration agreement”], which has been executed between the respondent/assessee and an entity named, MGF Development Ltd. [“MGF”].
The collaboration agreement concerned an integrated hotel project in Jaipur. The project involved the construction of a mall and a hotel. The hotel went by the name, Hotel Fortune Select Metropolitan.
The integrated hotel project was transferred/sold to an entity named M/s. Multitude Infrastructure Pvt. Ltd. for a consideration of Rs.95 crores. The total revenue earned from the project in the period in issue was Rs.135 crores.
The collaboration agreement entered into between the respondent/assessee and MGF cast several obligations upon the latter, which included providing and securing funds, bank guarantee and technical expertise for the integrated hotel project. The respondent/assessee was required to pay 60% of the revenue earned from the transfer/sale of the integrated hotel project to MGF. The amount that was eventually paid by the respondent/assessee to MGF was Rs.57.07 crores.
The revenue appellant submitted that the collaboration agreement captured a sham transaction, and therefore, AO had correctly made an addition of Rs.47,07,37,143/-, after making suitable adjustments towards technical expertise and brand value.
The CIT(A) and the Tribunal have ruled in favour of the respondent/assessee and deleted the addition made by the AO. The Tribunal viewed that the contention of the appellant/revenue that the collaboration agreement represented a sham transaction was not established. The consideration for sharing the revenue was provided by MGF in the form of funds, technical support/assistance for the execution of the project and the benefit of its brand value that had been acquired perhaps over the year.
A division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia viewed that the findings of facts returned both by the CIT(A) and the Tribunal, no interference is called for. The Court observed that the Tribunal concluded correctly that the amount received by MGF had been offered for tax and quite clearly, addition in that regard could not have been made in the hands of the respondent/assessee, once the remittance had been accepted in the hands of MGF.
The Court closed the Application filed on behalf of the appellant seeking condonation of delay of 430 days in re-filing the appeal.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
