2018 (3) TMI 1713 - AT - Income Tax

Disallowance u/s. 40A(3) - cash payment towards purchase of land which was stock in trade - Held that - Once the Appellate Court and the Tribunal have concurrently found that the explanation offered by the assessee as to why the cash payments made to the sellers is acceptable, the same does not involve any substantial question of law as the reasoning assigned and the interpretation applied by the Tribunal and the CIT (Appeals) are duly supported by the judicial precedents. Expenses on account of payment of registration charges including Stamp duty - Held that - It is true that the Stamp duty and the registration charges are borne by the purchaser. It is equally true that sometimes it is agreed between the parties that part of the Stamp duty/ registration charges shall be borne by the seller. In the case in hand, we find that the sellers have agreed to bear the charges over and above, the charges mentioned in the deed. We find that after due verification, the ld. CIT(A) has restricted the addition to ₹ 169450/- which calls for no interference. Ground is accordingly dismissed. Addition u/s. 68 - Held that - A.O. not only added the share application money received from the three companies but has also added ₹ 2.90 crores being share application money received from Shri Rakesh Pandey. We find that Shri Rakesh Pandey who is a company director was summoned by the A.O. at the fag end of the assessment i.e. 27.03.2014. At that point of time, Shri Rakesh Pandey was in Mumbai, therefore, could not attend. But we find that the return of Shri Rajesh Pandey was also scrutinized and in his balance sheet his investment in the shares in assessee company has been accepted. We also find that in the immediately subsequent two assessment years, the investment in shares by Shri Rakesh Pandey has been accepted by the A.O. after thorough scrutiny and in those years, Shri Pandey also appeared before the A.O. Thus, it can be seen that as in the case of these share applicant companies, investment made by Shri Rakesh Pandey has also been accepted by the Assessing Officer in subsequent assessment years. Addition on account of brokerage and commission expenses - Held that - The nature of business of the assessee is that it cannot purchase/sell lands without engaging the brokers. The A.O. has nowhere disputed that the assessee has purchased lands at various places. Therefore, it can be safely concluded that the services of the brokers must have availed by the assessee. It is also true that all the payments have been made by account payee cheques subject to TDS wherever applicable. These clinching evidences cannot be brushed aside lightly. Considering the facts in totality, we decline to interfere. This grievance is also dismissed.

Issues Involved:
1. Deletion of disallowance under Section 40A(3) of the IT Act, 1961.
2. Deletion of disallowance without specifying the clause under Rule 6DD.
3. Relief granted for unexplained expenditure.
4. Deletion of additions under Section 68 for unexplained cash credits.
5. Deletion of addition for unexplained brokerage and commission expenses.

Issue-wise Detailed Analysis:

1. Deletion of disallowance under Section 40A(3) of the IT Act, 1961:
The Revenue challenged the deletion of disallowance of ?34,86,300/- made under Section 40A(3) for cash payments towards the purchase of land, which was stock-in-trade. The Assessing Officer (A.O.) had made this disallowance based on similar findings in the previous assessment year (A.Y. 2010-11). However, the CIT(A) deleted the addition, noting that the A.O. applied Section 40A(3) mechanically without appreciating the facts and the genuine nature of the expenses. The Tribunal upheld the CIT(A)'s decision, citing a precedent from the Hon’ble Jurisdictional High Court of Chhattisgarh, which supported the deletion based on the genuineness of the cash payments.

2. Deletion of disallowance without specifying the clause under Rule 6DD:
The Revenue argued that the CIT(A) erred in deleting the disallowance without specifying the applicable clause under Rule 6DD, which provides exceptions to Section 40A(3). The CIT(A) observed that the A.O. did not appreciate the genuine nature of the transactions and deleted the addition. The Tribunal found that the issue was settled in favor of the assessee by the Hon’ble Jurisdictional High Court and upheld the CIT(A)'s order.

3. Relief granted for unexplained expenditure:
The A.O. added ?2,85,550/- as unexplained expenditure related to stamp duty and fees, noting a discrepancy between the amount debited in the books and the amount observed in purchase deeds. The CIT(A) partially deleted the addition, granting relief of ?1,16,100/-, concluding that the A.O. made presumptive additions without verifying facts. The Tribunal agreed with the CIT(A)'s findings, noting that the sellers agreed to bear part of the stamp duty/fees, and upheld the partial relief.

4. Deletion of additions under Section 68 for unexplained cash credits:
The A.O. added ?8.02 crores and ?2.90 crores under Section 68, questioning the genuineness and creditworthiness of the share applicants and the hefty share premium. The assessee provided detailed documentation, including PAN, financial statements, and bank statements of the share applicants. The CIT(A) deleted the addition, noting that the A.O. did not verify the book value and fair market value of the shares and made additions based on suspicion. The Tribunal upheld the CIT(A)'s decision, emphasizing that the transactions were through banking channels and the share applicants were not shell companies. It also noted that similar transactions were accepted in subsequent assessment years.

5. Deletion of addition for unexplained brokerage and commission expenses:
The A.O. disallowed ?36.86 lakhs claimed as brokerage and commission expenses, citing a lack of supporting evidence. The CIT(A) deleted the addition, noting that the assessee provided details of payments made through account payee cheques and deducted tax at source. The Tribunal upheld the CIT(A)'s decision, recognizing the necessity of brokers in the assessee's business and the verifiable nature of the payments.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions and reliefs across all issues, emphasizing the genuineness of the transactions, adherence to legal provisions, and the necessity of verifying documentary evidence before making additions.

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