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2012 (6) TMI 598 - AT - Income TaxPayment made for surrender of tenancy rights - dis-allowance on ground of absence of any tenancy agreement - Held that - From the registered agreement entered into between Mr.Mehta and the assessee, it stands proved that the assessee got the tenancy of the premises in question surrendered from the hands of Shri Mehta. The fact that the said agreement is a duly registered document, always carries presumption of correctness, cannot be lost sight of. So far as the plea of Revenue that there is no agreement of tenancy as such between the assessee and so-called tenant is concerned, it is well settled law that tenancy could be a contract written as well as oral. It is the inter-se conduct of the parties i.e. landlord and tenant in particular case which is the relevant factor to determine the relationship of tenant and landlord. Therefore, the same is allowed as business expenditure - Decided in favor of assessee. Dis-allowance u/s 37 in respect of payment made against purchase of materials from certain parties - expenditure alleged to be bogus on ground of non-furnishing of PAN number and non-production of parties to prove the genuineness of the transactions - Held that - In view of PAN being furnished, we find that instead of question no evidence in support, the case in hand is only regarding factual verification of the payments made. Hence, issue remitted back to AO to decide the issue afresh - Decided in favor of assessee for statistical purposes.
Issues Involved:
1. Disallowance of Rs.23,65,688/- under Section 37(1) of the Income Tax Act. 2. Deletion of addition of Rs.70,86,956/- by CIT(A) concerning payment made to a third party. Issue-wise Detailed Analysis: Issue 1: Disallowance of Rs.23,65,688/- under Section 37(1) of the Income Tax Act The assessee challenged the disallowance of Rs.23,65,688/- under Section 37(1) of the Income Tax Act, 1961, for purchases from four parties: M/s. Vikrant Enterprises, M/s. Prakash Trading Co., M/s. Bhanji Hirji Patel, and M/s. Artex Enterprises. The assessee argued that the costs were capitalized to the closing work in progress and not claimed as revenue expenses. The Assessing Officer (AO) disbelieved the expenditure as bogus, citing the non-response from the parties to notices and the absence of PAN numbers or new addresses for cross-verification. The CIT(A) upheld the AO's findings, emphasizing the lack of PAN cards and other verification details. The Tribunal noted that the AO provided only a week's time to prove the genuineness of the transactions, which was insufficient. The assessee produced necessary documents, including PAN numbers, TDS payment details, and bank statements. The Tribunal found that the issue required factual verification of payments and remitted the matter back to the AO for fresh consideration, ensuring adequate opportunity for the assessee. Issue 2: Deletion of Addition of Rs.70,86,956/- by CIT(A) Concerning Payment Made to a Third Party The Revenue contested the CIT(A)'s deletion of an addition of Rs.70,86,956/-, arguing that there was no privity of contract between the assessee and the third party, Shri Virendra Kumar Mehta. The AO had added this amount to the assessee's income, claiming the payment to Shri Mehta for vacating the premises was bogus since Shri Mehta was not the original tenant. The CIT(A) found that Shri Mehta had replaced the original tenant, Mr. Sachdeo, and the payment for vacating the premises was a legitimate business expense. The Tribunal upheld the CIT(A)'s decision, noting that the agreement of surrender of tenancy was a duly registered document, establishing the relationship between the assessee and Shri Mehta. The Tribunal emphasized that tenancy could be established through written or oral contracts and the inter-se conduct of the parties. The Tribunal found no merit in the Revenue's contention and dismissed the appeal, affirming the CIT(A)'s findings. Conclusion: The Tribunal allowed the assessee's appeal for statistical purposes, remitting the issue of disallowance under Section 37(1) back to the AO for fresh consideration. The Revenue's appeal was dismissed, upholding the CIT(A)'s deletion of the Rs.70,86,956/- addition. The order was pronounced on April 11, 2012.
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