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2016 (8) TMI 315 - AT - Income TaxDisallowance u/s. 40A(3) - proof of payment of expenditure through banking channel - Journal entries - Held that - We find that the ld. CIT(A) has deleted disallowance of ₹ 21.50 lacs as made by the Assessing Officer u/s. 40A(3) of the act by concluding that the same does not apply. He holds that the assessee has made FDR payment of ₹ 1 lacs over and above that agreed with the vendor and the same is not allowable as business expenditure. We find that the CIT(A) takes note of the case that the assessee has made payments of ₹ 20 lacs on 14-05-2012 and 15-05-2012 to Shri Kurkutia as land development expenses. He also placed on record relevant ledger account to prove that the same are paid through banking channel. This prima-facie rebuts case of the lower authorities that there was no land development agreement between assessee and his payees. We further notice that these ledger account could not be produced before the CIT(A) in course of the lower appellate proceedings. We feel it appropriate in larger interest of justice that the ld Assessing Officer needs to re-adjudicate the entire issue in view of all these developments as per law after affording adequate opportunity of hearing to the assessee.
Issues Involved:
1. Disallowance of expenditure under Section 40A(3) of the Income Tax Act, 1961. 2. Unverifiable purchase claim of ?20 lacs. 3. Penalty under Section 271(1)(c) of the Income Tax Act, 1961. Detailed Analysis: 1. Disallowance of Expenditure under Section 40A(3): The assessee's first appeal sought to delete the disallowance of ?1 lac made by the CIT(A) by reversing the Assessing Officer’s action invoking Section 40A(3) of the Act concerning FDR payments of ?1,50,000/-. The CIT(A) restricted the disallowance to ?1 lac, agreeing partly with the assessee’s contention that the statutory provision did not apply in the case. The CIT(A) observed that the appellant was required to put ?50,000 in FDR in favor of the seller as an additional amount, which was allowable, but the additional ?1 lac was not a business expenditure and hence disallowed. 2. Unverifiable Purchase Claim of ?20 lacs: The second substantive ground challenged the lower appellate order confirming an unverifiable purchase claim of ?20 lacs. The assessee had debited this amount for land development expenses through a journal entry dated 15-11-2008. The Assessing Officer disallowed this amount, considering it unverifiable as the payees did not respond to Section 133(6) notices, and the amount remained outstanding as of 31-03-2009. The CIT(A) confirmed this disallowance, noting that no actual expenditure was incurred, and the MoU presented by the assessee was neither registered nor notarized, making the claim unverifiable and unsubstantiated. 3. Penalty under Section 271(1)(c): The assessee's second appeal challenged the penalty of ?7,13,790/- imposed under Section 271(1)(c) corresponding to the above-stated quantum disallowance of ?20 lacs. The Tribunal opined that the penalty could not stand in light of the remand directions in the quantum proceedings. The penalty was deleted with the liberty to the Assessing Officer to initiate fresh proceedings as per law after finalizing the consequential assessment. Conclusion: The Tribunal heard both parties and reviewed the facts. It found that the CIT(A) had appropriately deleted the disallowance of ?21.50 lacs under Section 40A(3), concluding that the provision did not apply. The Tribunal noted that the assessee had made payments of ?20 lacs on 14-05-2012 and 15-05-2012 through banking channels, which prima facie rebutted the case of the lower authorities. The Tribunal felt it appropriate to remand the issue to the Assessing Officer for re-adjudication in view of these developments, ensuring justice by providing adequate hearing opportunities to the assessee. Consequently, the quantum appeal was allowed for statistical purposes, and the penalty appeal succeeded. Order: - Assessee’s appeal ITA 2849/Ahd/2012 is allowed for statistical purposes. - Assessee’s appeal ITA 146/Ahd/2016 is allowed. Order pronounced in the open court on 29-06-2016.
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