2014 (5) TMI 1069 - AT - Income Tax

Disallowance u/s 40(a)(ia) - amount paid by the assessee to the consolidator for transfer of rights - Held that - The issue in relation to disallowance u/s 40(a)(ia) is concerned the same is squarely covered in favour of the assessee by the decisions relied upon. The relevant conclusion as drawn by ITAT in the case of Finian Estates Developers Pvt. Ltd. (2012 (6) TMI 705 - ITAT Delhi) which state that the provisions of s.40(a)(ia) of the Act in any case do not apply, the assessee having not claimed any deduction for any expenses on account of payment of Vikram Electric Equipment (P) Ltd. either in its P and L a/c or in the computation of taxable income filed. It was only that the A.O. recoded a loss of 19, 700. This obviously did not include any addition of either 4.02 crores of 1.24 crore. So far as the issue in relation to genuineness of the expenditure is concerned it is found that the Department has not challenged the findings of Ld. CIT(A) in this regard. So considering the entirety of facts circumstances material on record and by following the precedents we direct to delete the impugned addition made by the A.O. and confirmed by Ld. CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961.
2. Genuineness of the expenditure claimed by the assessee.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961:

The primary issue revolves around the disallowance made by the Assessing Officer (A.O.) under Section 40(a)(ia) of the Income Tax Act, 1961, amounting to Rs. 43,10,130/- (correct amount Rs. 40,95,375/-). The A.O. treated the expenses as non-genuine and alternatively held that the amount should be disallowed under Section 40(a)(ia) with reference to Section 194H and Section 194C. The assessee had entered into an agreement with M/s. Vikram Electric Equipment Pvt. Ltd. for acquiring lands, and the payment was made towards the transfer of rights for the land.

The CIT(A) upheld the A.O.'s decision, stating that the payment to M/s. Vikram Electric was not genuine and alternatively, it was subject to TDS under Section 194H or 194C. The CIT(A) observed that the payment was not reflected separately in the P&L account and that M/s. Vikram Electric did not show the income in its P&L account.

During the appellate proceedings, the assessee argued that the payment was genuine and not subject to TDS as it was on a principal-to-principal basis. However, the CIT(A) found that the payment was in the nature of brokerage or commission, subject to TDS under Section 194H, and disallowed the amount under Section 40(a)(ia).

The ITAT, however, found that the issue of disallowance under Section 40(a)(ia) was covered in favor of the assessee by the decisions in the cases of Finian Estates Developers Pvt. Ltd. and Ethan Estates Development Pvt. Ltd., where similar transactions were involved. The ITAT concluded that the provisions of Section 40(a)(ia) did not apply as the assessee had not claimed any deduction for the expenses in its P&L account or in the computation of taxable income. Consequently, the ITAT directed the deletion of the impugned addition made by the A.O. and confirmed by the CIT(A).

2. Genuineness of the Expenditure:

The second issue pertains to the genuineness of the expenditure claimed by the assessee. The A.O. had questioned the genuineness of the payment made to M/s. Vikram Electric, stating that it was not reflected in the sale deeds and that M/s. Vikram Electric did not show the income in its P&L account. The CIT(A) also observed that the assessee failed to establish how the payment could be part of the purchase price of the land and rejected the claim of including the amount as part of the cost of land.

However, during the appellate proceedings, it was noted that the A.O. had not made any independent inquiry to disprove the genuineness of the expenditure. The CIT(A) had also not challenged the finding that the payment was duly reflected in the books of account and bank statements of the assessee. The ITAT found that the Department had not challenged the CIT(A)'s findings regarding the genuineness of the expenditure. Therefore, considering the entirety of facts, circumstances, and material on record, the ITAT directed the deletion of the impugned addition made by the A.O. and confirmed by the CIT(A).

Conclusion:

The ITAT allowed the appeal of the assessee, directing the deletion of the addition made under Section 40(a)(ia) and confirming the genuineness of the expenditure. The order was pronounced in the open court on 12th May 2014.