ITAT Deletes Rs 4.61 Crore Income-Tax Addition, Holds 70% Sale Proceeds Belonged to Collaborator Under Valid Joint Development Arrangement
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the appeal filed by Goel Flexible Packaging Pvt. Ltd. and deleted an income-tax addition of Rs 4.61 crore made by the tax authorities for the Assessment Year 2014-15.
The company, which is engaged in real estate construction and sale of flats, had sold 14 flats in Indirapuram, Ghaziabad, for a total consideration of Rs 4.75 crore during the relevant year. However, in its income-tax return, the company had offered around Rs 1.40 crore as its share of the sale proceeds.
The company explained that it had entered into a collaboration agreement with Suvandana Infrastructures Pvt. Ltd. Under the agreement, Goel Flexible Packaging was entitled to 30% of the sale value, while the remaining 70% belonged to Suvandana Infrastructures. The collaborator had also undertaken the construction-related expenses.
The Assessing Officer (AO), however, did not accept the collaboration arrangement. The AO treated the whole consideration of the sale including 70% share claimed to be of Suvandana Infrastructures as income of Goel Flexible Packaging. The AO also dismissed the company’s claim of Rs 1.20 crore toward the cost of acquisition of the land.
The company appealed against the assessment before the Commissioner of Income Tax (Appeals) but the addition was upheld. Then it went to the ITAT.
The tax authorities had questions about the validity of the collaboration agreement on several points. They pointed out that the agreement was not registered, the stamp paper had been purchased in Uttar Pradesh although both parties were based in Delhi, and the stamp paper pre-dated the agreement. The AO also noted that the agreement did not carry the signatures of witnesses.
The Tribunal rejected these objections. It observed that the agreement had in fact been executed and properly stamped. The mere fact that the stamp paper was purchased in Uttar Pradesh cannot render the agreement invalid. More so when the construction project itself is situated in Uttar Pradesh.
The ITAT further held that the non-availability of witnesses could not prove that the underlying business transaction was not genuine. Likewise, non-response of the collaborator to a notice issued under Section 133(6) of the Income Tax Act cannot by itself be a ground for rejecting the entire claim of the assessee.
The tribunal noted that the company had submitted supporting evidence such as the collaboration agreement, bank records, ledger accounts and other documents. The Tribunal noted that the tax authorities had not been able to produce sufficient evidence to show that the agreement was merely a stratagem to divert the income of the company.
The ITAT also referred to the decision of the Supreme Court in CIT v. Sitaldas Tirathdas, wherein it has been held that there is a distinction between income which comes first to an assessee and is thereafter applied for another obligation and income which, in view of an overriding obligation, never becomes the income of the assessee in the first place.
The Tribunal observed that in respect of this principle, the 70% share payable to Suvandana Infrastructures under the collaboration agreement amounted to an obligation which had to be borne prior to the income being treated as the assessee’s own income.
As to the land cost issue, the Tribunal found the tax authorities factually incorrect in their assertion that the land was not recorded in the books of the company. The Tribunal noted that the land was reflected in the books of account, and the purchase deeds were also produced before the authorities.
In view of these findings, the Delhi ITAT deleted the entire addition of Rs 4,61,82,937 made against Goel Flexible Packaging Pvt. Ltd.
The Tribunal accordingly allowed the company’s appeal.
Citation: Goel Flexible Packaging Pvt. Ltd Vs ITO (ITAT Delhi); ITA No. 1290/Del/2024; 09/09/2026; 2014-15.
