2015 (9) TMI 1229 - AT - Income Tax

Disallowance made under section 40A(3) - Held that - The observations made by the Ld CIT(A) with regard to the date of entering into MOU are not material to the issue under consideration, since the sale of plots so purchased by the assessee has been accepted and the assessee is showing the same as his business income. Further, the question of disallowance u/s 40A(3) would arise only, if the purchases are accepted, i.e., with regard to the expenses with are otherwise allowable under the Act. Further, we notice that the assessing officer did not examine the recipients of the cash in order to disprove the claim of the assessee as well as the confirmation letters given by them. Hence, we are of the view that the disallowance made u/s 40A(3) of the Act is not justified. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete the impugned addition. - Decided in favour of assessee. Disallowance on purchase of land from M/s Laxman Mhatre and others - Held that - We notice that the AO has accepted the cheque payment of ₹ 6.65 lakhs, which means that the assessing officer believes a portion of purchases and hence, in our view, he is not justified in disbelieving the remaining part. We may state here that the AO could have examined the said claim of purchases, by ascertaining the market value and accordingly proved that the payment of ₹ 22.00 lakhs made by way of cash is in excess of the prevailing market value, in which case, there could have been some justification. We notice that the AO did not make any such enquiries. In fact, as stated earlier, the AO has proceeded with the misconceived notion that there is no MOU, which was factually incorrect. It is well settled that the AO cannot be given a chance for mistake committed by him. Accordingly, we are of the view that the AO has made the disallowance of ₹ 22 lakhs on misconceived notions, without properly examining the documents. We also notice that the Ld CIT(A) has also committed error in confirming this disallowance. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete this addition.- Decided in favour of assessee. Disallowance made under section 14A of the Act - Held that - The dividend received from mutual funds has not been claimed to be exempt, but offered to tax. The AO has worked out the disallowance by considering the investments made in mutual funds also. Since, the disputed disallowance is only about ₹ 82,000/-, considering the smallness of the amount and also considering the various submissions made, we are of the view that this issue may be put at rest by sustaining the addition to the extent of ₹ 50,000/-. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to restrict the disallowance to ₹ 50,000/-. - Decided partly in favour of assessee. Adhoc Disallowance made out of expenses - Held that - With regard to car and telephone expenses, we also agree with the view of the AO that the involvement of personal element cannot be ruled out. However, with regard to the Business promotion expenses, we are of the view that the AO should have analysed the nature of expenses before coming to such a conclusion. We notice that the Ld CIT(A) also did not examine this aspect. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to make disallowance out of Car and Telephone expenses only. - Decided partly in favour of assessee.

Summary

Issues:
1. Disallowance under section 40A(3) of the Act
2. Disallowance on purchase of land from M/s Laxman Mhatre and others
3. Disallowance under section 14A of the Act
4. Adhoc Disallowance made out of expenses

1. Disallowance under section 40A(3) of the Act:
The AO disallowed a sum under section 40A(3) due to cash payments exceeding the prescribed limit. The CIT(A) upheld the disallowance, questioning the lack of evidence supporting cash payments. However, the ITAT found the AO's rejection of the assessee's submissions unjustified. The ITAT noted that payments to individual sellers did not exceed the limit, supported by ledger accounts, affidavits, and confirmation letters. The ITAT emphasized that suspicion cannot replace evidence and criticized the CIT(A) for disregarding the available details. The ITAT ruled in favor of the assessee, directing the AO to delete the disallowance.

2. Disallowance on purchase of land from M/s Laxman Mhatre and others:
The AO disallowed a sum for cash payments without a MOU, despite the assessee providing the MOU copies. The ITAT found the AO's reasoning flawed as the same amount was disallowed under section 40A(3), implying acceptance of the genuineness of purchases. The ITAT criticized the AO and CIT(A) for not properly examining documents and directed the AO to delete the addition.

3. Disallowance under section 14A of the Act:
The AO disallowed an amount under section 14A, exceeding the dividend income. The ITAT considered the AO's calculation excessive and restricted the disallowance to a lower amount, noting the decrease in investments and the dividend not claimed as exempt. The ITAT directed the AO to limit the disallowance to a specified amount.

4. Adhoc Disallowance made out of expenses:
The AO disallowed a portion of car, telephone, and business promotion expenses, citing personal elements. The CIT(A) upheld the disallowance, but the ITAT found the analysis lacking for business promotion expenses. The ITAT directed the AO to make disallowances only for car and telephone expenses, setting aside the CIT(A)'s decision.

In conclusion, the ITAT partially allowed the assessee's appeal, providing detailed reasoning for each issue and directing the AO to make necessary adjustments based on their rulings.