2020 (5) TMI 431 - AT - Income Tax

Addition u/s 40A(3) being 20% of the amount paid - assessee was acquiring the land from the various farmers by paying cash to them - HELD THAT - Disallowance u/s 40A(3) on identical facts and circumstances is decided by the several of the coordinate benches in the group cases holding that provisions of section 40A(3) does not apply to the facts of the case. The decision in case of Westland Developers Pvt. Ltd 2014 (12) TMI 254 - ITAT DELHI has held that the provisions of section 40A(3) has been wrongly invoked as no expenses related to the addition has been claimed by the assessee but the amount was shown in the capital work in progress at the time of purchase of land which was reimbursed - assessee was acquiring the land from the various farmers by paying cash to them and debiting it to the capital work in progress account. This sum was not claimed as an expenditure‟ in the profit and loss account. Therefore, there was no question of claiming deduction of this sum. The land was acquired on behalf of the other company who paid the assessee through account payee cheque. Such sum was credited in the capital work in progress account. The whole transaction of purchase of land as well as transfer to the sister concern was not routed through profit and loss account but were shown in the balance sheet. On these facts, coordinate bench held that provision of section 40A(3) of the Act do not apply. Addition on account of additional payments made for purchase of land - HELD THAT - Identical disallowances were made in case of the other group concerns and also in case of Westland Developers Pvt. Ltd 2014 (12) TMI 254 - ITAT DELHI wherein as deleted the identical addition.

Summary

Issues:
1. Rejection of contention regarding the assessment order under section 153C of the Income Tax Act.
2. Upholding reliance on seized material despite lack of nexus with the appellant's case.
3. Disallowance of additional payments for land purchase.
4. Disallowance under section 40A(3) of the Act.

Analysis:
1. The first issue pertains to the rejection of the argument that the assessment order should have been made under section 153C instead of section 143(3) of the Income Tax Act. The tribunal considered multiple decisions by coordinate benches, notably the case of Westland Developers Pvt. Ltd, and concluded that section 40A(3) was wrongly invoked as the expenses were not claimed but shown in the capital work in progress account. The tribunal reversed the CIT(A)'s decision and directed the Assessing Officer to delete the disallowance under section 40A(3).

2. The second issue involves challenging the CIT(A)'s decision to uphold the reliance on seized material from the BPTP Group, despite it having no nexus with the appellant's case. The tribunal found that the material seized did not belong to the assessee and, following precedent, directed the deletion of the disallowance related to additional payments for land purchase, as no deduction was claimed by the assessee.

3. The third issue concerns the disallowance of additional payments made for land purchase. The appellant argued that since no deduction was claimed for these payments, no disallowance should have been made. The tribunal, citing decisions from coordinate benches, including the case of Countrywide Promoters Pvt. Ltd, directed the Assessing Officer to delete the disallowance as there was no basis to sustain the CIT(A)'s order.

4. The fourth issue relates to the disallowance under section 40A(3) of the Act. The tribunal found that the provisions of section 40A(3) were wrongly applied as the expenses were not claimed as deductions but were part of the capital work in progress account. Following precedent and considering the facts of the case, the tribunal allowed the appeal and directed the deletion of the disallowance made under section 40A(3).

In conclusion, the tribunal partly allowed the appeal filed by the assessee, directing the deletion of disallowances and additions sustained by the CIT(A) based on the analysis and precedents cited in the judgment.