2015 (10) TMI 1598 - AT - Income Tax

Disallowance u/s 40A(3) - Held that - The total cost of purchases of the land the amount incurred for stamp duty recorded in page 5 of the assessment order, is the opening stock for the impugned AY. As the issue before us is the disallowance u/s 40A(3) of the Act and as the assessee has not claimed any expenditure during the year, the question of upholding disallowance u/s 40A(3) of the Act does not arise. - Decided in favour of assessee. Computation of loss on sale of land - Held that - There is no doubt that the assessee paid full price i.e. ₹ 1,88,53,629/- on purchase of impugned land which has been paid to the land owners or to the consolidator. The AO is not justified in reducing the cost of acquisition and hence making an addition to the profit on sale of land. Nothing has been brought on record that the purchase and sale are not genuine. In view of these facts, the assessee is entitled to a relief of ₹ 19,32,269/-. The AO has adopted a cost of ₹ 1,69,21,360/-. The reason given by the AO for such deduction is vague and devoid of merit. - Decided against revenue.

Summary

Issues:
- Disallowance under section 40A(3) of the Income Tax Act, 1961
- Deduction of purchase cost
- Charging notional interest

Issue 1: Disallowance under section 40A(3) of the Income Tax Act, 1961:
The case involved cross-appeals against the Ld.CIT(A)'s order for the Assessment Year 2007-08. The Revenue's appeal (ITA 816/Del/2011) contested the deletion of disallowance of a specific amount under section 40A(3) of the Act. The Tribunal upheld the Ld.CIT(A)'s decision as the assessee had not claimed any expenditure during the year, and purchases were made in the earlier year without any disallowance. The Revenue's argument regarding lack of particulars of purchases made was dismissed as irrelevant. Thus, the Tribunal dismissed the Revenue's appeal on this issue.

Issue 2: Deduction of Purchase Cost:
Another ground of appeal by the Revenue was against the deletion of a deduction made by the AO from the purchase cost claimed by the assessee. The First Appellate Authority had found that the AO's deduction was unjustified and upheld the assessee's claim for relief. The Tribunal concurred with the First Appellate Authority's decision, emphasizing that the assessee had paid the full purchase price, and the AO's reasoning for the deduction lacked merit. Consequently, the Tribunal dismissed this ground of the Revenue's appeal.

Issue 3: Charging Notional Interest:
The assessee's appeal (ITA 3483/Del/2012) challenged the charging of notional interest by the AO. The Tribunal ruled that notional interest cannot be charged as there is no provision for it in the Act. Referring to a decision by the Hon'ble Gauhathi High Court, the Tribunal highlighted that income-tax authorities cannot fix notional interest if not due or collected by the assessee. The Tribunal deleted the addition of notional interest made by the AO, citing lack of existence of such interest. Following the decision, the Tribunal allowed this ground of the assessee's appeal. Additionally, the Tribunal allowed the assessee's appeal against the penalty levied by the AO on the same grounds, as the addition of notional interest was deleted in the quantum appeal.

In conclusion, the Tribunal upheld the Ld.CIT(A)'s decisions on various grounds, dismissing the Revenue's appeals and allowing the assessee's appeal concerning disallowance, deduction of purchase cost, and charging notional interest.