2016 (9) TMI 1217 - AT - Income Tax

Addition on sale of TDR - taxability - Held that - The assessee received the TDR on 13.05.2008 by virtue of letter dated 13.05.2008 as per EXIT C . In view of the said circumstances apparently on 30.04.2007 the date of the execution of the MOU no TDR was in existence. The TDR cost was Nil, therefore right to eliminate is not taxable. The MOU speaks about the purchase of land however, the word purchase of TDR right has also been mentioned but at the time of execution of MOU dated 30.04.2007 no TDR right was in existence in favour of the seller as well as purchaser. Moreover, it come into notice that the seller was owner of the said land by virtue of Sanad dated 18th August 1962. The TDR right if any was going to be accrued then the same is going to accrued in favour of the owner. The assessee purchased this said land when no TDR was accrued in favour of earlier owner. Assessee did not purchase TDR right from owner. No doubt factual position of the land was well within the knowledge of the party but this fact cannot be denied that the TDR right on the land first time was accrued in favour of assessee which was sold by the assessee for sum of ₹ 1,20,00,000/-. In view of this peculiar facts and circumstances and in view of the law relied by the learned representative of the assessee mentioned above, we are of the view that he said amount in question is not taxable in accordance with law, therefore, we delete the said addition and allowed the appeal of the assessee. Accordingly, this issue is decided in favour of the assessee against the revenue. Disallowance to the extent of 5% on the expenses - Held that - At the time of examination of the documents / accounts, the Assessing Officer found that all the expenses were made in cash and were not supported with third parties evidence and many vouchers were self made. In some expenses personal element could not be ruled out therefore the Assessing Officer disallowed to the 10% of the total expenditure, however in appeal before the CIT(A), CIT(A) restricted the disallowance to the extent of 5%. No justifiable materials have been placed on record. However, assessee took the plea of preaudited accounts but this factual situation was also there at the time of filing an appeal before the CIT(A). When we consider the reasons of disallowance to the extent of 5% of the expenditure then we found that the documents of the accounts were not supported by third party evidence and the vouchers were self made which can be considered as cogent and convincing evidence in support of the claim of the assessee. Therefore we found that the CIT(A) has restricted the disallowance to the extent of 5% of the expenses claimed by the assessee which is quite reasonable, therefore, the observation of the CIT(A) is not required to be interfere with at this appellate stage. Accordingly this issue is decided in favour of the revenue and against the assessee.

Summary

Issues involved:
1. Addition of income on the sale of Transferable Development Right (TDR)
2. Disallowance of expenses at 5%
3. Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961

Issue No.1:
The appeal challenged the addition of income amounting to ?70,00,000 on the sale of TDR. The contention was that the TDR was accrued after the land purchase, making it non-taxable. The assessee relied on various legal precedents to support this argument. The department argued that the MOU for TDR sale indicated the purchase of TDR, justifying taxation. However, upon review, it was found that the TDR was not in existence at the time of the land purchase, and the right to eliminate was not taxable. As a result, the addition was deemed non-taxable, and the appeal was allowed in favor of the assessee.

Issue No.2:
The challenge here was the 5% disallowance on expenses totaling ?42,06,947. The Assessing Officer disallowed 10% due to lack of third-party evidence and self-made vouchers. The CIT(A) reduced the disallowance to 5%, which was considered reasonable. Despite the absence of justifiable materials, the CIT(A)'s decision was upheld as the vouchers were deemed sufficient evidence. Consequently, this issue was decided in favor of the revenue and against the assessee.

Issue No.3:
As no penalty was levied, challenging the penalty proceedings was deemed unjustifiable, and thus, this issue did not require adjudication. The appeal was partly allowed, and the order was pronounced in open court on 19th August 2016.