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2012 (8) TMI 485 - AT - Income TaxDisallowance of TDR transaction on account of inflated sales - transaction claimed to have been entered by the assessee with a sister concern - Held that - Assessee had purchased TDR from KHPL, its sister concern, who has claimed the purchase of TDR from original vendor company and finally sold by assessee resulting in profit of Rs. 3,59,750/- which is claimed to be offered for tax and not disputed by Revenue - sister concern has claimed to have paid tax @ 30% on profit from above transaction which has not been disputed on behalf of revenue, thus in case KHPL has suffered tax, then it cannot be said that tax planning device adopted by assessee by inflating its purchase price of TDR. As decided in CIT Vs. Indo Saudi Services (Travel) Pvt. Ltd. 2008 (8) TMI 208 - BOMBAY HIGH COURT if sister concern with whom transaction was entered was also assessed to tax in such situation no disallowance has to be made u/s. 40A(2) in respect of the payment made to the relatives and sister concern where there was no attempt to evade tax - in favour of assessee.
Issues:
Confirmation of disallowance of Rs. 78,75,000/- by CIT(A)-III, Pune on account of inflated rise of TDR relating to Assessment year 2007-08. Analysis: The appeal filed by the assessee challenged the confirmation of disallowance of Rs. 78,75,000/- by CIT(A)-III, Pune regarding the inflated rise of Transfer of Development Rights (TDR) for the Assessment year 2007-08. The Assessing Officer observed discrepancies in the purchase and sale of TDR by the assessee, a partnership firm engaged in construction and housing projects. The assessee claimed to have purchased TDR for Rs. 1,75,00,000/- from Kasturi Housing Pvt. Ltd., but the Assessing Officer found that the actual consideration paid was only Rs. 96,25,000/-. The Assessing Officer concluded that the transaction was a colorable device to evade tax, as the assessee inflated the purchase cost of TDR. Consequently, the disallowed amount of Rs. 78,75,000/- was added to the assessee's income as suppressed profit on the sale of TDR. The first appellate authority upheld the Assessing Officer's decision, leading to the appeal before the ITAT, Pune. The core issue revolved around whether the transaction between the assessee and Kasturi Housing Pvt. Ltd. was a genuine business deal or a tax evasion scheme. The assessee argued that the purchase and sale of TDR were legitimate transactions, supported by proper documentation and tax payments. The assessee contended that since Kasturi Housing Pvt. Ltd. had paid tax on the profit earned from the transaction, there was no loss to the revenue. The assessee relied on a Bombay High Court judgment stating that no disallowance should be made where there is no attempt to evade tax in transactions with sister concerns. Upon thorough examination of the facts and submissions, the ITAT, Pune found that the assessee had indeed purchased TDR from Kasturi Housing Pvt. Ltd. and sold it at a profit, which was duly offered for tax. It was noted that Kasturi Housing Pvt. Ltd. had paid tax on the profit earned from the transaction, as claimed. Referring to the Bombay High Court judgment, the ITAT concluded that since the sister concern had paid tax, there was no justification for disallowing the inflated sales in the hands of the assessee. Therefore, the ITAT allowed the appeal filed by the assessee, setting aside the disallowance of Rs. 78,75,000/-. In conclusion, the ITAT, Pune's judgment favored the assessee, emphasizing the legitimacy of the transaction and the tax payments made by the sister concern, thereby rejecting the Assessing Officer's contention of tax evasion through inflated purchase costs of TDR.
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